What’s mine is yours, or is it? – Tax efficient planning in marriage

Published on 26 June 2018

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Since the introduction of independent taxation in 1990, husbands and wives have been taxed separately. Although married couples (and those in civil partnerships) may on a day-to-day basis pool and share their income, from a tax perspective they each have a distinct share.

For many married couples there may be a significant disparity between the earnings of each, which may have adverse tax consequences for the family as a whole. Depending upon the nature of a couple’s earnings, there may be scope to minimise their combined tax liabilities, by fully utilising personal allowances and basic rate tax bands available to each of them. When a husband’s or wife’s income level marginally exceeds £100,000, and their partner’s income is less, there may also be opportunities to reduce the loss of personal allowance that happens when income exceeds this figure, which results in a tax band on which income is effectively taxed at an astonishing 60%.

The ownership of an asset, such as property and shares, determines who the income is taxed on. For a couple, jointly owned assets are taxed on a 50:50 basis, unless an asset is owned in a different proportion and an election has been made to HMRC.

Transfers of assets between husbands and wives do not result in a capital gains tax or inheritance tax charge, and therefore ownership can be changed to divert income to the person on which it will result in a lower tax charge.

It is important to consider all aspects of a transfer, as it may have adverse consequences elsewhere. For example, if you run a trading company and are considering transferring shares to your husband or wife, it is important to consider whether both parties will qualify for entrepreneurs’ relief.

The basis on which property is owned, whether it be jointly, or as tenants in common, should also be factored into the decision making process, along with how assets are left in your Will.

So the next time your husband or wife goes on a shopping spree, in addition to debating whose money is being spent, you may want to consider whether the income has been received in the most tax efficient manner. It may be that your purchasing power could have been increased by a bit of careful tax planning!

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