Love, tax and marriage
PUBLISHED: 06:58 21 April 2014
There are numerous tax advantages for married couples and civil partners (all references to spouses, married couples and marriage apply equally to civil partners and civil partnerships).
From 6 April this year everyone will have a personal income tax allowance of £10,000 a year, so the first £10,000 of taxable income is tax-free. And from 6 April 2015, married couples will be able to transfer unused personal income tax allowances to each other (at present you can only do this if you and/or your spouse was born before 1935 and married before 2005). But you will only be allowed to transfer up to £1,000 and you must both be basic rate taxpayers.
There are other ways to take advantage of income tax incentives:
Employ your spouse in the business if you are self-employed. Their wages are a tax allowable deduction for you.
Use a limited company to share income. If you hold half of the company’s shares and your spouse holds the other half, dividends can be paid equally. As long as neither spouse’s income exceeds the basic rate threshold (currently £41,450, including personal allowance), this income is tax-free.
Own assets jointly with your spouse. Income earned on those assets is normally taxed half each, even if the ownership proportion is not 50:50. But you can’t do this with income from partnerships, furnished holiday lettings or dividends in most family companies.
Capital gains tax
Transfers and sales of assets between spouses are normally free of capital gains tax (CGT), but there are exceptions. You can usually transfer assets into joint names before sale to a third party, to ensure that that you use both spouses’ CGT annual exempt amounts.
For inheritance tax (IHT) there is an exemption for transfers of assets between spouses, for lifetime transfers and for transfers on death. The first £325,000 of every estate is free of IHT, so the first £650,000 of assets of a married couple is effectively free of IHT.
Stamp duty and stamp duty land tax
Gifts between spouses are usually free of stamp duty or stamp duty land tax (SDLT), but there are different rules for mortgaged properties. If you take on the mortgage from your spouse there will be an SDLT charge.
Proceed with caution . . .
Tax planning for married couples and civil partners can make excellent use of the tax allowances available. But there are pitfalls for the unwary, so it’s sensible to take professional advice from the experts.
The information contained in this article is for your information only. While every effort has been made to ensure its accuracy, information contained herein may not be comprehensive and you should not act upon it without seeking professional advice.