FAMILYMATTERS Married couples Spouses are taxed as independent persons, each of whom is responsible for their own tax affairs. The phrase ‘spouse’ whenever used in this guide includes a registered civil partner. For spouses, there is no aggregation of income, no sharing of the tax bands and except in limited circumstances detailed later in this guide, the personal allowance may not be transferred from one spouse to the other. Minimising the tax bill However tax can be minimised if spouses equalise, as far as possible, their income so that personal allowances, savings allowance (SA) and dividend allowance (DA) are fully utilised and higher/ additional rates of tax are minimised. Example In 2021/22 Ian and Angela have savings income of £50,000, dividend income of £50,000 and no other income. If this is split equally between them, the total tax bill for the couple is £6,022. If only one spouse has an income of £100,000 and the other has nothing, the total tax bill leaps to £21,986 - an additional £15,964!
Jointly owned assets Married couples will often own assets in some form of joint ownership. If they do not then it may be advantageous, for tax purposes, for transfers to be made to ensure joint ownership. This can have benefits for income tax, CGT and even inheritance tax. Tax Planning If you and your spouse are both involved in running a business, income can be equalised if you are equal partners or equal shareholders. Alternatively, if only one of you is involved, the other could be employed in a small capacity, drawing a salary to use up their personal allowance. Where assets are owned in joint names, any income is deemed to be shared equally between the spouses. If the actual ownership shares are unequal, income is still deemed to be split equally unless an election is made to split the income in the same proportion as the ownership of the asset. This does not apply to shares in close companies (almost all small, private, family owned companies will be close companies) where income is always split in the same proportion as the shares are owned.
Tax Tip If you are feeling charitable, remember that a donation to charity under the Gift Aid scheme benefits from tax relief. It makes sense for a higher rate/additional rate taxpayer spouse tomake such donations so that they can benefit from the extra tax relief. Alternatively, in some circumstances, donations can be carried back to attract tax relief in the previous tax year. Tax breaks for spouses Married couples and civil partners may be eligible for a Marriage Allowance (MA). The MA enables spouses to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples. The option to transfer is available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their personal allowance to their partner which means £1,260 for the 2021/22 tax year. For those couples where one person does not use all of their personal allowance, the benefit will be up to £252 (20% of £1,260).
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Family Matters
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