Figures from DIY investment group Hargreaves Lansdown show that 79% of men trust their spouse enough to share their assets in order to take advantage of tax rules, compared with 69% of women.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said those who do trust their spouses are able to take advantage of tax breaks that can save you both money.
“The tax rules are designed to make your spouse one of your most valuable tax planning tools,” she said.
Why your spouse is so valuable
There is no tax of any kind to pay when you hand assets to a spouse, whereas if you share them with anyone else, gains of more than £3,000 could result in a capital gains tax (CGT) charge. Gifts to a spouse also aren’t considered part of your estate for inheritance tax purposes.
Some of the ways you can take advantage of this include:
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- Managing your assets between you to take advantage of two sets of tax-free allowances, including your income tax personal allowance, personal savings allowance, dividend allowance and CGT allowance.
- Splitting your assets into two £20,000 ISA allowances – “If one of you has the lion’s share of any income or assets, you can pass cash to your spouse, so you can still both take advantage of your ISA allowances this year,” Coles said.
- Splitting your assets into two for pensions purposes – Most people have an annual limit of either £60,000 or their earnings – whichever is lower. If you’re both working and earning, you can take full advantage of your allowances. “If your spouse doesn’t earn enough to pay tax, you can still pay in £2,880 to their pension, and it will be topped up to £3,600 with tax relief,” Coles added.
- Using ‘Bed & Spouse & ISA’ – If you have investments outside an ISA or a SIPP and you have used your ISA allowance but your spouse hasn’t used theirs, you can give assets to your spouse without triggering a tax bill, so you can both realise gains up to the allowance and then shelter up to £20,000 each in an ISA.
The risks of spousal sharing
Only those who trust their spouse should take advantage of sharing their assets. Once you have given your money to a husband, wife or civil partner, they are free to make any decisions they want with it, such as moving investments or savings and spending as much as they want.
Any money you hand over is also theirs to leave in any way they wish in a will. You may have mirror wills or have drawn up wills together to ensure no matter who passes away first, the beneficiaries are right for both of you. However, there is nothing stopping them from drawing up a will to leave everything to someone you didn’t want to benefit on their death.
In the event of a divorce, you may be able to come to an agreement about the division of assets, or the courts will divide your estate up in a way it believes is fair.
