If your dual house income is quite high there are some tax nuances you’re able to take advantage of individually and with your partner.
Strategic Pension Contributions
Utilising ISA and pension allowances might not be right for everyone, but these are usually the most popular tools to help save on UK income tax and capital gains tax.
UK adults each have an annual ISA allowance of £20,000 (for the 2022/23 tax year), which is pretty generous for most people. Even if you’ve used your full allowance, don’t forget to make sure your partner uses theirs if they can and it’s right for their circumstances. If you choose to hold investments, it’s important to remember they will fall as well as rise in value, so you could get back less than you invest.
For most people the maximum amount you can add to pensions each tax year before incurring a tax charge is £40,000. Unfortunately, you can’t share each other’s pension allowance. But you can look at which tax brackets you both fall into and work out how much each of you could contribute to reduce tax within your means.
Inheritance Tax Planning
IHT is normally charged at 40% on the value of your estate over £500,000 (£1 million per couple). That includes an allowance of up to £175,000 each when you pass your main residence to a direct descendant. If your estate is worth more than this, it could be worth considering starting to give away some of your money now.
As you both have gifting allowances, your partner can help too. You can each give away up to £3,000 per year, as well as an unlimited number of small gifts up to £250 to each person provided you haven’t already given any other gifts to the same person during the same tax year. You can also gift any of your unused annual gifting allowance from the previous tax year so you might even be able to pass on more.
Although, there always seems to be a “but” with tax rules. In this case, it’s the seven-year rule. You normally don’t have to pay IHT on gifts that don’t fall within one of the exemptions (including those exemptions covered above), as long as you live for more than seven years after making the gift.
Marriage Allowance
Married couples and civil partners may be able to transfer some of their income tax personal allowance to their spouse.
If you earn less than the £12,570 personal allowance and your spouse is a basic rate taxpayer, you can gift £1,260 of your allowance. This could save them 20% tax on that £1,260. A potential saving of up to £252.
Better still, you can backdate this saving four tax years, so they could keep even more in their pocket.
To ensure you are optimising your personal taxation in 2023, talk to one of our FCA authorised wealth managers by arranging a Discovery Call [Here]
This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.