We often hear that there is no longer any tax advantages to being married or in a civil partnership. That isn’t strictly true, but you may need to plan a little to take advantage of these tax saving tips:
1: Capital Gains Tax
Spouses can transfer assets between them without a charge to Capital Gains Tax. The recipient is deemed to have acquired the asset at the same price their partner did and on the same date. If you are sat on an asset that is likely to trigger significant capital gains tax, you can transfer that asset into joint names prior to sale to unlock your spouse’s Annual Exemption and save a decent amount of tax.2: Interest and Dividends
Interest earned on your savings attracts a tax free allowance. This is £1,000 if you are a basic rate taxpayer and £500 if you are a higher rate taxpayer. Placing your money in accounts separately lets you control where the interest arises and enables you to take full advantage of both of your Savings Allowance to save tax.
You can also save up to £20,000 into ISAs per year each. ISAs remain one of the best ways to save tax on investment income as the dividends or interest earned in the account is tax free. You don’t need to have earned this money personally and your spouse could give you money to pay into your ISA to take advantage of this tax free income.
3: Transfer of Personal Allowance
If one of you earns less than the personal allowance (£12,500) and the other is a basic rate taxpayer you should be claiming the Marriage Allowance. This allows you to transfer £1,250 of your tax free Personal Allowance to your spouse. This should reduce the total tax that your family pays by up to £250 per year and if you have not claimed before can be backdated for further tax savings.
4: Tax Rates
If there is a difference in the rates of tax that you and your spouse pay, you should consider whether you can move any income generating assets into the name of the lower earner to take advantage of their lower tax rates. This is particularly important where your income takes you above £100,000 as you could be paying tax at an effective rate of 60%.
5: Inheritance Tax
On death you would normally have to pay inheritance tax on the value of your personal assets over your nil rate band exemption (£325,000). Anything left to your spouse is covered by a Spousal Exemption and will pass to them free of tax. In addition, any of your unused nil rate band can also be transferred to your spouse, reducing the IHT payable on their estate further down the line.
Where Being Married Won’t Help!
If you or your Spouse are claiming child benefit, the amount the claimant is entitled to receive will start to be clawed back if your income is above £50,000. If you live with your partner and you have joint responsibility for the children, the child benefit clawback is based on the income of the highest earner regardless of who received the benefit. Sadly this assessment is unaffected by your marital status.
We hope you found this helpful. For more information regarding Personal Tax, please feel free to email Gary Olding directly.