Joining Financial Forces As A Couple | Living North

Joining Financial Forces As A Couple

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Joining forces as a couple to maximise the benefits of tax planning has been flagged most recently in the summer Budget, when the Chancellor announced the introduction of the family home allowance
While the devil is always in the detail in exactly how the rules apply, making use of joint tax allowances can help maximise your current wealth, while financial planning as a couple can reduce the ultimate tax liability that your family face in the years to come

This allowance will potentially be available to reduce Inheritance Tax (IHT) liability for deaths after 6th April 2017 starting at £100,000 and then increasing by £25,000 per tax year until it reaches £175,000 from 6th April 2020. This can be added to the current £325,000 IHT allowance but only when the owners’ primary property is left to children or grandchildren. This potentially increases the IHT nil rate band headline rate for a homeowner couple from the current £650,000 to £1m. 

While the devil is always in the detail in exactly how the rules apply, making use of joint tax allowances can help maximise your current wealth, while financial planning as a couple can reduce the ultimate tax liability that your family face in the years to come.

Setting up a discretionary nil rate band trust, for example, facilitates assets, up to the value of the nil rate band for each (£325,000), to be directed into the trust for the children / beneficiaries. The assets, as well any subsequent growth on those assets, will be outside of the beneficiaries’ own estate for IHT purposes on their death. As assets of a trust, they would also be excluded from the individual’s estate in the event of bankruptcy and in some cases, divorce proceedings.

Making use of both partners’ Capital Gains Tax (CGT) annual allowances, currently £11,100 for each individual, can have a more immediate benefit, particularly if all the realised gains fall within the allowance and as such, are tax free.  Structuring portfolios so that the returns are in the form of taxable gains rather than being taxed as income is one thing a good financial planner will often consider as it can result in the tax bill being zero rather than 40%.

A person considering selling assets that will generate more than £11,100 in CGT when sold, may consider transferring some of the assets to their civil or married partner. As the transfer of the asset will not be subject to CGT under the inter-spouse exemption rules, they can each make use of their own CGT allowance on sale, making a maximum of £22,200 total CGT exemption provided certain rules are met.

Similarly, where one person has used up their CGT annual allowance and wants to sell an asset, it can pay to transfer that asset across to their partner. One point to note, however, is that when the asset is finally sold, the CGT calculation is based on the gains from the original date of purchase not the date of transfer, even though the asset has changed hands.

Transfers can also help maximise a couple’s income tax allowance. Where a couple pay different rates of tax and the higher rate tax payer holds deposits or investments outside of an ISA, it can be beneficial to transfer the assets to their spouse or civil partner paying the lower tax rate to decrease the overall income tax bill on those assets.  

Even where the income might take the lower rate taxpayer into the higher rate bracket, as higher rate tax is taken only on the proportion of income above the threshold, the savings at the lower rate are still likely to be beneficial.

Sound financial planning involves considering all circumstances and assets, as well as using all available tools to maximise current and future wealth. It may all sound a little complex, but to an Independent Financial Adviser like Lowes Financial Management this sort of planning is ‘bread and butter’ and can make a significant difference to a family’s net wealth, now and for generations to come. 

Lowes Financial Management
Holmwood House, Clayton Road, Jesmond, Newcastle NE2 1TL
0191 281 8811

www.lowes.co.uk
Click here for more financial advice from Lowes 

Published in: September 2015

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