#Tax Myth 11 - The Tax System Doesn't Support Marriage

Posted on in Business Tax

Marriage and civil partnerships are provided with many reliefs within the tax system and I'm surprised why people claim otherwise.

Business Partnerships

Where one spouse is a partner, it's very often the case that their spouse gets involved in the business later on, for example, a wife decides to stay at home when the children are young and instead of working for a third party, helps out in her husband's business.

If the other partners agree, his wife could be admitted to the partnership by taking half of her husband's share.

As each spouse enjoys two tax free personal allowances, for a higher rate taxpayer this saves £3,776 of income tax within the personal allowance, and 20% of tax on income above £9,440 and less than £32,010, a maximum of £8,290. Plus a maximum saving of Class 4 National Insurance @ 9% of £3,730.

Ordinarily, the disposal of the husband's partnership share would create a capital gain.

However, where this asset is gifted to his wife, there is no capital gain, so there is no tax downside to the change in partnership share.

Limited Companies

A not dissimilar arrangement might be suitable for your limited company. In this case, the sale of some or all of your shares to your spouse will not trigger a tax charge on you.

Whereas, if you'd given your shares to your non-married partner, a capital gain might arise. You could both defer this capital gain if you sign a 'holdover' election, but you'd need to understand it and complete it within the deadline.

Similarly giving shares to a spouse for no tax effect, enables you both to own the minimum 5% required to receive entrepreneurs relief on the sale of your unquoted company,  doubling up the maximum relief on lifetime gains from £10m to gains of £20m, potentially saving capital gains tax of £1.8m being £10m @ (28% - 10%)!

Other Assets eg Quoted Shares

Where you have built up a portfolio of shares which, we hope!, eventually make a profit, this is subject to capital gains tax. If your gain is more than the tax free annual exemption of £10,900, you'll pay either 18% or 28% of capital gains tax.

Before you sell these shares, you can give some to your spouse who can sell them later on and use a second tax free annual exemption, saving up to £3,052 of capital gains tax. And if your spouse is a basic rate taxpayer, you may save an additional 10% (28% - 18%) capital gains tax worth up to £3,201.

Inheritance Tax

I suspect this affects more people than any other measure. If you own a home as a single person or within an unmarried couple worth £650,000, your estate may suffer £130,000 of inheritance tax on your death. If, however, you are married, there is no inheritance tax due when either, or both, of you die.

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