Love, romance and … taxes. It’s not the first thing that springs to mind when considering the perfect Valentine’s gift for your partner, but if you’re married, in a civil partnership, or even planning to get down on one knee, then there’s a range of tax reliefs available that you should be aware of.
As gift wish lists go, tax relief might be a bit more Martin Lewis than Marvin Gaye in the romance stakes, but who wouldn’t fall in love with the idea of having a bit more money in their bank account? That’s why the professionals at Perrys Chartered Accountants have put their heads together and come up with a whole bunch of tax saving ideas that could leave you smelling of roses.
Income Tax savings
If you (or your spouse) are earning a wage below the Personal Allowance of £12,570, then you could be eligible for Income Tax relief. This tax break, known as marriage allowance, lets a husband, wife or civil partner transfer £1,260 of their personal allowance to the higher earning partner.
To qualify, one of you must be earning a wage of £12,570 or less and your spouse or partner must be paying Income Tax at the basic rate. This means their income will need to be between £12,571 and £50,270.
This tax saving can be worth up to £252 per year. However, around 2.4 million qualifying couples are failing to claim the benefit. The good news is marriage allowance can be backdated up to four years.
Capital Gains Tax savings
If you’re married and have sizeable assets, then transferring them to your spouse could help to reduce your Capital Gains Tax liabilities.
For example, if you own shares and are a higher rate taxpayer and you want to sell them, then you will need to pay Capital Gains Tax at the higher rate. However, if you are married and your spouse is paying a lower rate of tax, then you could transfer your shares to them without triggering a tax charge. Your spouse can then sell the shares and pay the lower rate of tax instead.
You can also use an inter-spouse transfer prior to disposal to make use of your partner’s tax-free annual exemption, which currently exempts the first £12,300 of gain from tax, thus, achieving tax free gains of up to £24,600 between you in the current tax year (the tax-free annual exemption will reduce to £6,000 each from 6th April 2023).
Inheritance Tax savings
What could be more romantic than inheritance tax planning?! Most couples do not currently have a will in place and many have not considered the potential inheritance tax bill on their assets.
However, if you are married, or in a civil partnership, then with mirror wills in place you can benefit from a transfer of your partner’s nil rate band for inheritance tax. This can delay a potentially hefty tax bill and give you more time to plan or to make lifetime gifts to reduce the overall inheritance tax payable on your family’s wealth.
For unmarried couples, the nil rate band cannot be transferred, and inheritance tax would be payable at 40% on an estate where assets exceed £325,000 (an additional residence nil rate band of £175,000 may also be available for those passing a qualifying residence worth £500,000 or more to a direct descendant).
Get a tax health check
As with most taxes, careful planning is required to ensure you are not missing out on reliefs which may be available to reduce your tax bills. If you’re unsure about whether you qualify for any of the above tax reliefs, or you want further advice, then organising a tax health check could help. Simply get in touch with Perrys by calling 0800 0191 451 or complete a contact form and one of the team will be in touch.