Married couples and civil partners have an advantage they should make use of before the tax year comes to an end on 5 April.
The buzzword is “interspousal transfers” – these allow couples to move assets between each other to maximise their tax-free allowances.
That means they can use two sets of personal savings allowance, dividend allowance and capital gains exemptions to reduce the overall amount of tax exposure for the family.
We talked to Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, for some specific examples of how much you could save in tax.
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Personal savings allowance
Scenario: A husband earns £65,000 a year and is a higher-rate taxpayer, his wife is a basic-rate taxpayer who earns £25,000. Both have used up their ISA limit. The husband holds £50,000 in a savings account, earning £2,297, or 4.5%, in interest.
Without an interspousal transfer: If these savings are in the husband’s name, he only has a £500 personal savings allowance for the interest he earns and the rest (£1,797) will be taxed at 40%, equalling £718 annually.
With an interspousal transfer: His wife has a £1,000 savings allowance, so if he moves the savings into her name, less interest will be taxed, and the rate will be lower at 20%. So only £259 will be taken in tax.
Total saving: £459.
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Capital Gains Tax
Scenario: The same couple. The husband holds shares with a £12,000 unrealised gain, of which £3,000 is exempt from CGT and £9,000 is taxable.
Without an interspousal transfer: Taxed at 24% for higher-rate taxpayers, £2,160 will be owed to HMRC.
With an interspousal transfer: If he transfers half the shares to his spouse tax-free, each can use the £3,000 exemption on their half, reducing the taxable gain to £6,000. The wife is a lower-rate taxpayer, so her £6,000 will be taxed at 18%, amounting to £540.
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Total saving: The total tax to pay will be £1,260, saving the couple £900.
There is a catch, however, Haine says:
“Before transferring shares, funds or cash to your other half, remember they become the full, legal owner of the assets, so this is an unwise move if the relationship is not on stable ground.”
