Tax breaks for married couples

Nov 22, 2013 | Personal Tax

Transferable tax allowances (TTA) won’t take effect until 2015/16 and even then the tax savings won’t hit you pocket until Summer of 2016.

Who Qualifies

Only married couples and civil partners will be entitled to TTA’s. Either you or your spouse must have income of less than the tax free personal allowance (expected to be at least £10,000 at this time) and the other must not  have income of more than £42,285.

What is it worth?

For a couple entitle to claim TTA’s one will be able to transfer £1,000 of their personal allowance to the other which will give a maximum saving of £200. If the income exceeds £42,285 by just £1 the couple lose the rights to TTA completely.

To get around this the receiving spouse can try to reduce their income by making a pension contribution for example.

However there may be more tax savings of up to £5,000  by shifting income from the higher paid spouse to the other having the same effect as using TTA’s.

Shifting income for tax purposes can be worthwhile for married couples where one party has more income than the other.

You can legitimately reduce your income for tax purposes by several methods, which differ depending on the type of income involved. As a general rule earned income, such as salary, is far more difficult to shift than investment income. Here is a list of possibilities:

Earned income

  • have your company appoint your spouse as a company secretary or director and pay them fees. Reduce your salary etc. to balance this
  • have your company employ your spouse to take over some of your role in the company and adjust your pay accordingly
  • personally employ your spouse or children to help with your job.

Investment and other unearned income

  • give some of the shares you own in your company to your spouse so that your dividend income is reduced
  • give other shares, bonds etc. to your spouse so that the income belongs to them and not you
  • change joint interest producing bank accounts etc. with your spouse, or those in your name alone, into their name
  • where you own a property, which you let out, pay someone, e.g. your spouse, or children if they are old enough, to manage it. The money you pay them for this will reduce the profit you make from renting it.

Tax-deductible outgoings

  • instead of you making Gift Aid donations have your spouse pay them
  • shift pension contributions, i.e. pay more now and less later.