The joint ownership of assets
The ownership of income producing assets should be divided in such a way, to ensure that personal allowances are fully utilised. This way any higher rate tax liabilities are minimised. When husband and wife jointly own assets, any income arising is usually assumed to be shared equally for tax purposes. This rule applies even where the asset is owned in unequal shares. Unless an election is made to split the income in accordance to the ownership of the asset.
Married couples are taxed on dividends from jointly owned shares in ‘close’ companies according to their ownership of the shares. Close companies are those owned by the directors, or five or fewer people. For example, if a spouse is entitled to 95% of the income from jointly owned shares they will pay tax on 95% of the dividends from those shares. This is designed to close a loophole in the rules and does not apply to income from any other jointly owned assets.
We at Adiva Accountants can advise on the best strategy for jointly owned assets to ensure that the tax liabilities are minimised.
Capital gains tax (CGT)
The CGT liability for each spouse is computed by reference to their own disposals of assets. Each spouse is entitled to their own annual exemption allowance of £11,100 per annum, for 2015/16 and 2016/17.
Tax savings may be made by ensuring that maximum advantage is taken of any available capital losses and annual exemptions. This often is achieved by transferring assets between spouses before the sale of the asset. This course of action generally has no adverse implications for CGT or inheritance tax. Planning is important, and the impact on income tax of transferring assets should be carefully considered.
Inheritance tax (IHT)
When a person dies, IHT becomes due on their estate. The rate of inheritance tax payable is 40% on death, and 20% on lifetime chargeable transfers. The nil rate band covers the first £325,000. Providing the donor survives for seven years after the gift, most of them are ignored and not tax is due on them.
Transfers of property between spouses are generally exempt from IHT. New rules have been introduced which allow the surviving spouse to use any nil-rate band unused on the first spouse’s death. The transfer of the unused nil-rate band from a deceased spouse, irrelevant of the date of death, may be made to the estate of their surviving spouse who dies on or after 9 October 2007. The amount of the nil-rate band available for transfer will be based on the proportion of the nil-rate band which was unused when the first spouse died.
IHT is not charged on a gift for family maintenance. These cases include the transfer of property made on divorce under a court order. Also, the gifts for the education of children, or maintenance of a dependent relative.
Gifts in consideration of marriage are exempt up to £5,000 if made by a parent with lower limits for other donors.
Small gifts to individuals not exceeding £250 in total per tax year per recipient are exempt.
Gifts which are made from income which are typical and habitual and do not result in a fall in the standard of living of the donor are exempt. Payments under deed of covenant and the payment of annual premiums on life insurance policies would usually be exempt too.
If you live in Greenwich, Bromley, Kent and London we, at Adiva Accountants in Greenwich can help you pay less Capital Gains and Inheritance tax, depending on your family’s personal circumstances, so why not call us today.