Firstly we are of course not suggesting that you rush down the aisle for tax reasons but you may be surprised that there are a number of financial benefits to tying the knot. Whilst in principle we are all taxed as individuals, married couples, including civil partners are given a little leeway in organising their finances to reduce the overall family tax bill.
Marriage Allowance:
A couple can make a claim for Marriage Allowance – this is where you can claim a proportion of your partners unused personal allowance.
Rules apply of course, one of the couple must earn less than the current personal allowance of £12,500 and the other partner earn over this amount but must not be a higher rate taxpayer. The claim for 2019/20 is worth £250.
You can make a claim for the previous 4 years if you have not already done so. A claim before 5th April 2020 is therefore essential.
Gift of Shares:
Gifts of shares between spouses (and civil partners) are normally free of any capital gains tax. Your spouse or partner will be deemed to have acquired the shares at the price you originally paid, and so any increase in value when they sell them would, in theory, be liable for CGT if they exceed the annual allowance of £12,000.
It is sensible to write a letter of instruction, stating that you’re making an ‘irrevocable gift’ to your wife. Keep hold of all the paperwork for the future in case that this is every questioned by HMRC.
Gift of Property:
You can gift the beneficial ownership of a property from one spouse to another so that the rental income can be taxed on the spouse whose taxable income is lower.
This is the simplest form of planning since the house is held outright by the spouse paying the lowest rate of tax. It is also relatively easy to change the beneficial ownership of UK property but there will be forms to complete.
However, some spouses may prefer to hold assets or other property jointly. Such ownership is also helpful if one spouse dies, whereupon the other spouse usually has full access to the asset without the need for probate formalities.
Under tax rules, income from most jointly held assets is deemed to be taxed 50:50. This applies even if the true ownership is not 50:50. However, the couple may choose to be taxed in line with the true ownership ratio.
All this means that if you want the income to be solely taxed at your income tax rate, then the property will need to be wholly transferred to you.
There is further good news. There will be no Stamp Duty payable on the transfer between spouses. Unless there is a mortgage outstanding on the property. If this is the case, then there are different rules, so do seek our advice for further information.
Also, because the transfer is between spouses, there are no capital gains and inheritance tax implications.
Limited Company closures – Member’s Voluntary Liquidation (MVL)
If you are a Limited Company Director, have you thought about exit options from the Company? A good exit strategy and planning can thousands of pounds if implemented correctly.
Closing the company using a solvent liquidation (MVL) to release funds at an attractive 10% tax is just one of those ways but this comes of course with its own rules and restrictions.
One of the rules of the MVL is that you cannot personally operate as a Director in the same trade for a period of 2 years thereby restricting you doing the same job in a different company.
One way round this is to involve your spouse and put the company in their name, and provided the rules and criteria are met, the company would be liquidated in their name, they would get the benefits and the 2 year restriction, leaving you free to carry on trading.
This is a complicated area and you should always seek advice before
Inheritance Tax:
People who are married or registered civil partners do not have to pay any Inheritance Tax on money or property left to them by their spouse. The rules for couples mean it is usually best for them to leave everything to each other.
Everyone can leave up to £325,000 free of IHT. In addition a spouse can leave all that they own to their spouse entirely free of IHT. In the past, if they did that they wasted their own tax-free allowance as their spouse just had the same £325,000 allowance when they died. But that changed on 9 October 2007. From that date the surviving spouse has a threshold consisting of their own £325,000 allowance plus any unused part of their late spouse’s allowance, whenever they died. So if the late spouse left nothing to anyone else, the surviving spouse has a double allowance when she dies.
As you can see, tax planning can be extremely advantageous if this is done correctly and timely. If you want further advice and guidance on this complex matter, Contact us today to arrange a FREE consultation, we have Chartered Accountants and Tax Advisers in Canary Wharf, Essex and Manchester waiting for your call.
