Splitting assets between married couples
Careful allocation of income and assets between couples can result in significant tax savings.
Married couples are taxed separately on jointly held assets. If you have a joint savings account, you will each pay tax on half the interest earned from this. If one spouse is basic rate or a non-tax payer and the other pays tax at the higher rates, then transferring the whole of the account to the lower earning individual reduces the tax you pay overall.
Care should be taken over the Financial Services Compensation Scheme. If a bank collapses the scheme refunds up to £75,000 of your savings. If savings are held on a joint basis, up to £150,000 would be refunded, but if the account was held in a single name only £75,000 would be returned. If your savings are in excess of £75,000 you should consider splitting them between different banks.
Review the distribution of your assets each year to make maximum use of tax reliefs.
If you give someone as asset you usually have to pay CGT on the profit you would have made, had the asset been sold rather than given away. However, this rule does not apply to gifts between spouses. An asset that produces income, such as a share portfolio or a rental property, can therefore be owned by a lower earning spouse for Income Tax purposes and transferred into joint ownership before sale. Everyone has an annual tax-free capital gains allowance; spouses can both use their allowance against gains, effectively doubling the tax-free amount that can be realised.
Related case studies
Susan dies aged 77 leaving a pension fund of £350,000. She leaves her pension fund to her granddaughter Kate.
I have a question...
Some Free EQ Guides
Coming into money isn’t something that happens often. Before you commit yourself to spending, investing, giving gifts or even giving up your job, here are some tips on how to make your windfall work for you in the long run.
EQ is a Chartered Financial Planning firm able to offer a wide range of services to private clients including tax optimisation, retirement income planning and estate planning.
The April 2015 Budget saw the most radical changes to the pensions landscape for a generation, but the new flexibility on offer is only available to personal pension holders. Members of final salary schemes can only access the new rules by transferring to a personal pension.
This guide explains how planning ahead of time can provide for – and in most cases reduce – the amount of tax that is ultimately due on your estate.