5 Tax Tricks for Couples in 2024

The good news is that there are a few options available to legitimately reduce your tax bill. Some of these are open to anyone, for example, making ISA or pension contributions.

Couples have even more options to reduce tax, as they can combine their income and assets in the most tax-efficient way depending on their situation.

In this guide, we look at a few options for couples to optimise their finances and increase tax savings.

Make Use of Marriage Allowance
As suggested by the name, this option is only available to married couples.

This means that if one spouse earns under the personal allowance (£12,570), they can pass up to £1,260 of their unused allowance to their spouse. This could save up to £252 per year.

To qualify, the spouse receiving the unused allowance must be a basic-rate taxpayer. This means that they earn under £50,270 per year (£43,662 in Scotland).

You need to claim Marriage Allowance as it is not applied automatically. Providing you have qualified in each relevant tax year, you can backdate a claim as far as April 2019.  

You can find out more here.

Combine Savings Allowances
If you have cash in the bank, there are allowances that can be used to offset tax on savings interest. The allowance can also be set against some types of investment income, such as chargeable gains on bonds.

The allowances are:

• Savings Allowance – this is currently £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers are not eligible.
• The starting rate for savings – this allows up to a further £5,000 in tax-free interest if the person earns under £17,570 in total.

The allowances are explained fully here.

While cash interest has been negligible for many years, current rates mean that many people are earning a reasonable return on their cash and could benefit from the tax savings.

Holding savings jointly means benefiting from both partners’ allowances. Alternatively, if one spouse is a higher earner, it might make sense for the lower-earning spouse to hold more cash.

This option is available to any couple, whether or not they are married. However, unmarried couples would not have any claim on the other’s assets in the event of a split, so it’s important to think carefully about the options.

Use Dividend Allowances
The dividend allowance is currently £1,000, although this is reducing to £500 from April 2024.

This can be used to offset tax on income from your own company or any equities you hold for investment purposes.

If you own a company, it might make sense to allocate some of the shares to your partner. This means making use of both allowances. You can also employ your partner within the business and pay them a salary – this is a legitimate business expense providing they genuinely work in the business and the salary is reasonable for what they do.

Investment portfolios can be allocated between partners in the same way as cash savings, depending on each partner’s overall tax position.

It also makes sense to use both partners’ ISA and pension allowances to shelter more money from tax.

Optimise Capital Gains Exemptions
When you dispose of assets at a profit, you may need to pay capital gains tax (CGT). The capital gains exemption is currently £6,000, reducing to £3,000 from April 2024. Any gains within the exemption are free of tax. Over and above this, gains are taxed at between 10% and 28% depending on your tax band and the type of asset. The tax applies whether you sell the asset or give it away.

Partners each have their own exemption, which can increase the relief available when selling joint assets. But in addition, any assets passing between married couples are ignored for CGT purposes. This means no tax is due on the disposal. When the recipient eventually sells the asset, the ‘base cost’ will be however much their spouse paid for it (taking into account any costs).

If you have an investment portfolio, it might make sense to hold assets jointly and make use of both exemptions each year, for example, by switching funds, taking withdrawals, or using your ISA allowance. If one partner has some (or all) of their basic rate band available, it may be worth selling more in their name so that if the gain is taxable, the liability is 10% rather than 20%.

If you need to realise a large gain, for example, by selling a property, it’s worth thinking about how to structure the disposal tax-efficiently.

Joint Estate Planning
Couples can also benefit from joint planning when it comes to estates and Inheritance Tax (IHT). For example:

• Any assets left to a spouse via a will or intestacy are not subject to IHT and do not use up any of the deceased person’s nil rate band (£325,000). On second death, the total estate can benefit from a joint nil rate band of £650,000.
• The residence nil rate band of £175,000 can also be passed to a spouse. This means that a jointly owned home can be passed to direct descendants and up to £350,000 of the value (subject to the value of the property and total estate) could be free of IHT.  
• Each partner has an annual gifting exemption of £3,000. Any gifts up to this amount are immediately outside the estate for IHT purposes. The allowance can be carried forward by up to one tax year, which means that a couple could gift up to £12,000 in a single tax year.

There are multiple ways to make use of both sets of nil rate bands, exemptions and allowances. Trust planning, life insurance, and business assets could also form part of the solution. As estate planning can be a complex area, couples are encouraged to seek advice on a joint basis.

Please do not hesitate to contact a member of the team if you would like to find out more about tax planning.