Independent taxation means that husbands and wives incomes and capital gains are taxed separately. As a result, both have their own personal allowances and basic rate tax bands for income tax. Also, the annual exemption allowance for capital gains tax purposes. Each are responsible for their own tax affairs. The same rules apply to same-sex couples who have entered a civil partnership under the Civil Partnership Act.
For tax purposes a child is an independent person. So, is entitled to a personal allowance, the savings and basic rate tax bands before being taxed at the higher rate. Therefore, it may be possible to save tax by generating income or capital gains in the children’s hands.
Tax planning for couples
Every person is entitled to a basic personal allowance. However, this allowance cannot be transferred between spouses, except for the circumstances below.
From the beginning of tax year 2015/16, married couples and civil partners are eligible for a new Transferable Tax Allowance.
This is the Marriage Allowance, and enables spouses and civil partners to transfer 10% of their personal allowance to their spouse. This option is not available to unmarried couples. This option is available only to couples where neither pays tax at the higher or additional rate. If eligible, one partner can transfer 10% of their personal allowance to the other partner, which is £1,100 for 2016/17 (£1,060 for the 2015/16 tax year).
Couples who marry within the year are entitled to the full benefit in their first year of marriage. For all those couples, where one spouse does not use all their personal allowance, this tax benefit will be worth up to £220 in 2016/17 (£212 in 2015/16).
Eligible couples can apply for the marriage allowance at https://www.gov.uk/marriage-allowance. The spouse or partner with the lower income need to enter some basic information before applying to transfer some of their personal allowance. Those who do not apply via the government gateway will still be able to make an application later and receive the allowance.
A married couple’s allowance is available, if either you or your spouse were born before 6 April 1935. This is given to the husband, although it is possible, by election, to transfer it to the wife.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you minimise the amount of tax that you have to pay, depending on your family’s personal circumstances, so why not call us today.