SAVING TAX BY TRANSFERRING INCOME TO YOUR SPOUSE OR CIVIL PARTNER
It is surprising how sometimes the more basic, proven tax saving techniques get neglected, either because circumstances change, or simply because you are too busy looking after customers to look after yourself. Moving income to a spouse or civil partner has long been an option where they are paying income tax at a lower (or higher) rate than you are. With the new top rate of 50% about to come in on income over £150,000 the saving can be greater than ever, and it is an annual tax saving rather than merely one-off.
If assets are owned generating income of, say, £5,000 the tax saving each year could be as much as £2,500 where your spouse has no income at present, or £1,000 if you pay tax at 40% and your spouse is a basic rate taxpayer.
Not surprisingly there is some anti-avoidance legislation which serves to still tax you on the income if the gift is not outright and instead there are some conditions attached or you could benefit from the gift. However, HMRC are relaxed about you receiving an indirect benefit in the following circumstances where you may feel you want to have a degree of protection:
- Placing funds into an account with joint beneficial ownership can provide a degree of protection by arranging for withdrawal only if you are a signatory. The income is then taxed 50:50. HMRC accepts this provided it is a straightforward gift.
- Converting property from sole into joint ownership is also acceptable provided it is a straightforward gift. The property could be owned 90:10 in favour of you but with the income taxed 50:50.
- Crediting the income from the asset transferred into a joint account. This is not likely to be regarded as taxable on you even though you will be receiving some benefit, provided it was not a condition of the gift being made.
- Using the income from the asset transferred to meet your family’s household or holiday expenses is also likely to be acceptable with the same proviso.
Where you run a business as a limited company you could pass some shares to your spouse or civil partner and with care the dividends they receive on their shares will be taxed on them rather than you. If you have not already considered this please talk to us for up to date information on this tax saving idea.
