5 Tax Tips for Married Couples – Love and Taxes

It’s the day that most men dread. No not changing a nappy for the first time but Valentine ’s Day.

I Love Tax

A day of stress for the Husband as they play the age old guessing game of whether “I don’t want any fuss” translates to

a) please shower me in rose petals and luxury oils or
b) feel free to watch the Europa League on sky.

So this year I’m erring on the safe side with a card and the offer of a home cooked meal. I had good intentions of ordering a card on moon pig so that it arrived in plenty of time. As usual however it is now Valentine’s eve and I haven’t organised anything.

Historically I have been lucky enough to live in the sprawling metropolis of London which has 24 hour shops selling everything you could ever need. The employees at the 24 hour Tesco are always bemused at the procession of men who trail into the store.

Husband, Boyfriend or Fiancé it’s all the same. They enter the store look around in a confused state until they see the gaggle of like minded men around the card stand. Five minutes of procrastinating over the meagre selection ends in choosing the card that least looks like you bought it for your granny. One year all that were left were cards for “My beloved Fiancé” luckily I was engaged at the time but had to draw an E on the end. I don’t think Mrs TTF noticed (well she married me anyway).

Then it’s a desperate sprint to the chocolate aisle to pick through the remaining weird flavours that are left (dandelion anyone?).

I am just hoping that Saffron Walden’s stores follow the same practice…..

Some of you love birds will even receive marriage proposals but are there any tax reasons why you should agree to marry or enter into a civil partnership?

THE TAX BIT

The tax man is a bit of a romantic and loves to give married people a tax break.  These are my top five please read marriage as including civil partnerships.

1. Capital Gains Tax

A married couple can transfer assets between each other free of capital gains tax.

This can be useful if you are a higher rate tax payer and want to transfer investments e.g. quoted shares to you spouse in order to utilise their basic rate bands when receiving dividends.

A transfer between spouses can also enable both of your annual exemptions for capital gains tax to be utilised.  Thus gains in 2012/13 of £21,200 can be realised tax free instead of £10,600.

2. Married Couples Allowance

If either spouse was 65 before 06 April 2000 they will be entitled to Married Couples Allowance which will effectively reduce their tax bill by £296.

The relief automatically either goes to the Man if the marriage was before 2005 or alternatively it will be applied to the highest earner.  If the couple wish for a different split to apply then they can mak an election for the married couples allowance to be transferred between spouses by using this form .

3. Inheritance Tax

Any assets transferred between spouses in life or on death are free from Inheritance Tax.

In addition any nil rate band (The value of a persons estate that is exempt from IHT) unused on a  persons death can be transferred to their surviving spouse.  The nil rate band for 2012/13 is £325,000.

4.  Splitting income on jointly owned property

It is usual for income from jointly held assets to be split between spouses on a 50/50 basis even if the actual ownership basis is different.

At the beginning of the tax year it is possible to elect for the income to be split on the actual ownership basis e.g. 99%/1%.  Again this may have benefits if the spouses have different tax rates but the actual beneficial ownership must match the split.  The relevant form can be found here.

5.  Bed & Spousing

Historically investors in shares triggered a gain on the last day of the tax year to utilise their Capital Gains Tax annual exemption and then buy them back the next day.

HMRC got wise to this practice and introduced anti-avoidence rules to stop you buying shares back within 30 days which put a halt to these transactions.  If however you would like to utilise your annual exemption in this way (or trigger losses) your spouse could buy the shares back instead. After 30 days they would be able to transfer the shares back into your name.

The approach was known as bed and breakfasting but is now romantically known as bed and spousing.

The above is a very brief description of the reliefs available to married couples and you should always seek advice from a chartered tax advisor to ensure that your circumstances qualify.

So if your partner gets down on one knee tomorrow think about all the great tax reliefs that are available……..oh and how much you love them too!

By Peter Cross

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