Couples are using simple money transfer hack to pay less tax
Married couples and civil partners can lower the amount of tax they pay before the tax year ends in April.
Through something called 'interspousal transfers', couples can move savings, shares, or other assets into the name of the partner who pays less tax.
Because each person has their own tax-free allowances, couples can often reduce their overall tax bill by sharing assets wisely.
Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, has provided some specific examples of how much you could save in tax to Sky News.
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Example one:
One example is savings interest, so if a husband earning £65,000 is a higher-rate taxpayer, the wife, earning £25,000, pays tax at the basic rate.
And if the husband has £50,000 in savings earning 4.5 percent interest, it gives him £2,297 a year.
If the savings stay in his name, only £500 of the interest is tax free because higher-rate taxpayers have a smaller personal savings allowance. The remaining amount is taxed at 40 percent, creating a tax bill of £718.
If he transfers the savings into his wife's name, she can use her larger £1,000 savings allowance.
Any extra interest is then taxed at her lower 20 percent rate instead of 40 percent. This reduces the tax bill to £259 and equates to a total saving of £459 a year.
Example two:
The same idea can also help with capital gains tax (CGT).
In this example, the husband owns shares that have increased in value by £12,000.
Without transferring any shares, he can only use his own £3,000 CGT exemption.
The remaining £9,000 is taxed at 24 percent, meaning he would owe £2,160 in tax.
If he transfers half the shares to his wife before selling them, both partners can use their £3,000 exemptions. In addition, the wife pays a lower CGT rate of 18 percent because she is a basic-rate taxpayer.
As a result, the total tax bill falls to £1,260, saving £900.
Mentioning a potential catch, 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."
The official UK government guidance states: "With certain exceptions any transfer of an asset between spouses or between civil partners who are living together is treated by TCGA92/S58 as taking place for such consideration as will give neither a gain nor a loss to the transferor."
"These exceptions include where the transferred as was part of the trading stock of the spouse or civil partner making the transfer; or acquired as trading stock for a trade carried on by the transferee spouse or transferee civil partner; or disposed of by way of donation mortis causa (see CG30400) comprised of exempt employee shareholder shares (see CG56740 and CG56715)."
Topics: Money
Anish Vij