A simple tax tip for investments

One of the easiest, but often most overlooked tax planning ideas is to ensure that any investments held in a household are held in the lower earning spouse’s name.

As you may know, current transfers of assets (whether income producing or not) between spouses or civil partners are outside the scope of tax and are treated as a ‘nil gain/nil loss’ transfer.

With particular relevance to this article, are those income producing assets that provide you with interest, dividends or rental income.

If you were to hold these assets in your own name as a higher rate or additional rate tax payer, you would be subject to tax at the higher/additional rates on this income. Indeed, if this income is made up of interest or dividends you will have further tax to pay even though tax has already been deducted from this income in most circumstances.

If the income is rental income, the amount of tax that will be payable as a higher rate or additional rate tax payer will be 100% or 150% higher than if you were a basic rate tax payer.

Therefore, if your spouse is a basic rate tax payer or, even better, has no sources of income themselves, transferring the assets to their name will allow the household to receive this income at a much lower rate of tax or potentially even tax-free. Therefore, in the worst cases this simple tax planning tip could save you over £3,700 in tax each and every single year.

Of course, before making the transfers that you might now be considering, bear in mind that this action may be challenged by HM Revenue and Customs if your spouse/civil partner is the holder of the asset in name only and does not have access or use of the asset transferred. In addition, remember that you are giving away assets that you may have built up over a number of years and that these may be considered in the case of divorce or bankruptcy should the worst happen.

Unfortunately, this tax planning idea is only particularly simple to those of you who are married or in a civil partnership.

If you are unmarried but living with a long-term partner, or simply wish to pass assets on to another family member or friend, similar planning can be undertaken, although there may be other tax consequences.

Please contact a member of our team if you would like advice on your particular circumstances.