FAMILY MATTERS 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 their income so that personal allowances, savings allowances and dividend allowances are fully utilised and higher/ additional rates of tax are minimised. Example In 2024/25 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 £6,860. If only one spouse has an income of £100,000 and the other has nothing, the total tax bill leaps to £23,092 - an additional £16,232!
Where assets are owned in joint names, any income is deemed to be shared equally between the spouses 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. Example A buy to let property is owned three quarters by Helen and one quarter by her husband Mark. If no election is made the net rental income on which tax is payable will be split 50:50. If an election is made the income will be split 75:25. A choice can be made according to which is the most desirable when other income of the spouse is taken into account. Capital gains tax Independent taxation also applies to CGT. Each spouse is entitled to take advantage of the annual exemption of £3,000 before any CGT has to be paid. This is advantageous where assets are held jointly and then sold as each spouse can use their annual exemption to save tax. The transfer of assets between spouses is neutral for CGT. This is sometimes done shortly before assets are
Tax Tip A donation to charity under the Gift Aid scheme benefits from tax relief. It makes sense for a higher rate/additional rate taxpayer spouse to make such donations so that they can benefit from the extra tax relief. 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 one party has not used all of their personal allowance and the other does not pay 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 2024/25 tax year. Relief is given as a basic rate tax reducer with a benefit of up to £252 (20% of £1,260). It is also possible to backdate your claim for previous years - please contact us if you think this might apply to you. Jointly owned assets Married couples will often own assets in some form of joint ownership. This can have benefits for income tax, CGT and even IHT.
Family Matters
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