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3 ways you and your partner can help save tax

With Valentine’s day behind us, now could be an opportune time to show your tax allowances some love. Here’s how to work with your partner to help save tax together.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

When it comes to saving tax, you’ll sometimes need the support of your loved ones. And even though Valentine’s day is behind us, it’s time to show your tax allowances some love too.

Some tax allowances are generous and well-known, others are a bit more complicated. If you’re a high earner or your household income is high, you’ll need to be smart about how you use them.

To have total confidence you’re making the most of your allowances, you might want to make the most of the knowledge and expertise of a financial adviser.

Tax rules can get a bit heavy – they can change a lot and the benefits depend on your personal circumstances. We can give advice on how to make the most of your tax allowances, but if you need complex tax calculations you should speak to a tax specialist.

This article and guides aren’t personal advice. If you are unsure whether an investment or course of action is right for you seek advice.

Book a call with our advisory helpdesk

The marriage allowance

Married couples and civil partners can usually transfer some of their income tax personal allowance to their spouse.

If you earn less than the £12,500 personal allowance and your spouse is a basic rate taxpayer, you can gift £1,250 of your allowance. This could save you 20% tax on that £1,250. A saving of up to £250.

Better still, you can backdate this saving four tax years, so you could keep even more in your pocket.

Inheritance tax (IHT) planning

This next tip could help the ones you love now and when you’re gone.

IHT is normally charged at 40% on the value of your estate over £500,000 (£1 million per couple). That includes an allowance of up to £175,000 each when you pass your main residence to a direct descendant. If your estate is worth more than this, it could be worth considering starting to give away some of your money now.

As you both have gifting allowance, your partner can help too. You can each give away up to £3,000 per year, or an unlimited number of small gifts up to £250 each (provided you haven’t already given any other gifts to the same person during the same year). You can also gift any of your unused annual gifting allowance from the previous year so you might even be able to pass on more.

Although, there always seems to be a “but” with tax rules. In this case, it’s the seven-year rule. You normally don’t have to pay IHT on gifts that don’t fall within one of the exemptions (including those exemptions covered above), as long as you live for more than seven years.

Guide to saving on IHT

Tactical ISA and pension contributions

It wouldn’t be the end of the tax year without talking about ISA and pension allowances. Although they might not be right for everyone, these are usually the most popular tools to help save on UK income tax and capital gains tax.

UK adults each have an annual ISA allowance of £20,000 (for the 2020/21 tax year), which is pretty generous for most people. Even if you’ve used your full allowance, don’t forget to make sure your partner uses theirs if they can and it’s right for their circumstances. If you choose to hold investments, it’s important to remember they all fall as well as rise in value, so you could get back less than you invest.

For most people the maximum amount you can add to pensions each tax year is £40,000. Unfortunately, you can’t share each other’s pension allowance. But you can look at which tax brackets you both fall into and work out how much each of you could contribute to reduce tax within your means.

Individually, you might also be able to carry forward any unused pension allowance from the previous three tax years.

Remember, money in a pension cannot normally be accessed until age 55 (57 from 2028).

If you want to take advantage of these rules this tax year, you might want to fall in love with your calculator first. This will help you to check how you could benefit and the amounts involved. It can be time consuming but we have some useful online calculators to help too. Or you can ask a financial adviser or a tax specialist to do the calculations for you.

End the tax year the right way (by getting an expert to do it)

Diaries always fill up fast towards the end of the tax year. Book a call with our advisory helpdesk by 10 March and, if you choose to go ahead, we’ll guarantee you get your advice before the deadline of 5 April.

Our advisory helpdesk won’t provide personalised advice, but they will help you decide if advice is right for you and explain the charges.

End the tax year in the right way.

Book a call

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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