Part 2 of Making the Most of Independent Taxation

May 2017
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In a previous blog post we looked at some of the ways that married couples and civil partners can make the most of their allowances. We weren't able to cover all topics in one article, which brings us onto this piece. 

With that in mind, this blog post looks at two other ways that you and you partner can make the most of independent taxation. Don’t forget to read the first blog post for more information on this topic.

Capital Gains

If quoted shares or a property, which is not a main residence, are being sold, the capital profit realised is subject to capital gains tax. Each person has a tax free allowance for gains of £11,300. If the gain is greater it will be taxed. The gain in excess of the tax free allowance and any allowable losses, is added to the individual's income for the year.

On disposals of shares tax is levied at 10% where total income and taxable gains are below £45,000 and 20% where total income and gains exceed £45,000.

For residential property sales, which is not a main residence, such as a second home or buy to let, the respective tax rates are 18% and 28%.

Married couples and civil partners may transfer ownership of property between each other without creating a taxable gain in so doing. This makes it possible to share gains made by one spouse with another or to transfer them entirely. Sharing the gain doubles the tax free allowance from £11,300 to £22,600. If each pays tax at a different rate it may also save 10% on the taxable portion given to the lower taxpayer too.

Cohabitants Beware

These opportunities to save capital gains tax do not apply to cohabitants or divorcees who are not married or in a civil partnership. They will be taxed as 2 single people and any transfer of assets could give rise to both capital gains if the profit exceeds £11,300 and to inheritance tax if the donor dies within 7 years of the transfer and has an estate of more than £325,000 or £425,000 including a main residence.

Co habiting couples may however own two main residences which are exempt from capital gains tax. Married couples and civil partners can only own one exempt property, apart from the first 18 months of ownership.

Couples have the scope to arrange their affairs to minimise their tax liabilities. The beginning of a new tax year is a good time to do this.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. The Financial Conduct Authority does not regulate tax planning. Tax rates and allowances may change in future.

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