Until 1990, married couples were treated as a single taxpaying unit - with any tax due being the liability of the husband even if it arose from the wife's own income. Since then, husbands and wives have become responsible for their own tax affairs. As a result, you can now ignore your spouse's income when working out your tax bill for the year. However, if you are married, the law will still treat you differently from a co-habiting unmarried couple.
Until 2000, all married couples were entitled to an additional allowance - known as the married couple's allowance. This allowed a married couple more income before any tax was due than an unmarried couple. Since 6
April 2000, however, you can only get this allowance if you or your spouse was born before 6 April 1935. So clearly, this allowance will be of limited relevance as time goes on.
Take advantage of different tax rates between yourself and your spouse
However, you might be able to arrange your affairs in a tax-efficient manner so as to take advantage of different tax rates - this can in fact apply even if you are not married. This will be useful if one of you is a higher rate taxpayer whilst the other partner is not paying any tax (or is only a basic rate taxpayer).
If you are in this position, you may be able to save tax on your investment income by ensuring that the investments are owned by the partner with the lower income. If you are not married you may have to watch out for capital gains tax if you transfer an asset from one person to another, but this should not be a problem if the investment income simply comes from cash deposits at the bank or building society.
In either case, you must ensure that the person receiving the money genuinely owns the underlying investment.
There may be situations where you are happy to let your partner have some of "your" income, but you do not wish to relinquish all control of the underlying investment. In such a case, you may wish to co-own the asset with your spouse.
Co-owning your assets for tax advantage
When you co-own an asset, there is no reason for you to own the asset in equal shares. For example, you could own 75% and your other half 25%. However, for married couples, you have a choice when it comes to tax.
Tax law will automatically treat you and your spouse as sharing the income 50:50 even if you do not actually own the investment in equal shares. But, if you want, you can elect to be taxed on your actual shares. To do this, you must complete a form and send it to the Inland Revenue. See www.inlandrevenue.gov.uk for details.
This 50:50 rule is very useful if you wish to reduce you and your spouse's overall tax liability, but also retain much of the control over the underlying assets. You could put the assets in joint name, but only give away a 5% share of the investments.
Because of the 50:50 rule, your spouse is treated as receiving 50% of the income even though only 5% has been given away.
You should note that since April 2004, the 50:50 rule does not apply to dividends from family companies. So if you jointly own shares in such companies, you must pay tax on the dividends in line with the proportions with which you actually own the shares. The general rule is that assets can pass between husband and wife without any tax consequences. This allows married couples to arrange their investments without worrying about the tax consequences. This even extends to assets you pass on to your spouse when you die. However, if you are from the UK but your spouse is from overseas there is a lifetime limit of £55,000 on the value of assets you pass to him or her. After you have exceeded this amount, any assets you pass on to your spouse when you die (or in the previous seven years) could be subject to inheritance tax.
Tax credits look at the total income of the household and do not distinguish between married and unmarried couples.
The tax disadvantages
Yes. If you transfer an investment to your spouse, the rules say that this must be treated as a tax-neutral transaction. If you are not married, it will sometimes be better to allow a loss or gain to be generated (so that you can reduce other gains you have made in the tax year, or to take advantage of your capital gains tax annual exemption). You could do this by selling the investment to your other half at its current value. However, these options are not available to married couples.
Implications for same sex partnerships
Currently the law only applies to recognised marriages, something only available to couples involving a man and a woman. The Civil Partnerships Bill currently going through Parliament does not propose to change this.r Christmas and New Year.
