Using Wife's tax allowance

Baileyman

Could do with some general advice please. I am a decorator approaching the age of 65, and intending to carry on working part time for a few of my clients. My wife is the same age. We will both have tax allowances now of £9490 each.

We both have a small pension in addition to our state pension. My wife will have unused tax allowance of £3000 and mine will be £1000.

My point is, how can I pay her £3000 from my business to use her allowance. She does help in the business. So if I do this would she need to register as self employed and complete a tax return, or if the income is below the tax threshold does it need to be declared?

Any thoughts would be appreciated - thanks

Merlin_Accounts

You could pay your wife a wage that is commensurate to her duties (but dont exceed £110 pw or you will have to pay employers NI). The wage has to be what you would pay anyone else for doing the work that your wife does (so if her duties take up 2 hours a week for example you could not justify paying her £110 pw).

Alternatively, you could make your wife a partnerin the business. At present the Governments intended clampdown on income splitting (as they call it) is on the backburner. So you could simply allocate a profit share to your wife of £3000 pa. As you are both over 65 she would not have to pay Class 2 NI on this (and you should cease paying it too if you were already 65 on 6 April this year).

Making your wife a partner will mean you have to do self assessment tax returns for you, your wife AND for the partnership.

Tiggergirl

Baileyman wrote: »

My wife will have unused tax allowance of £3000 and mine will be £1000.

Maybe I'm missing the point, but if you both have unused tax allowance, why would you want to transfer income to your wife?

Baileyman

Merlin_Accounts wrote: »

You could pay your wife a wage that is commensurate to her duties (but dont exceed £110 pw or you will have to pay employers NI). The wage has to be what you would pay anyone else for doing the work that your wife does (so if her duties take up 2 hours a week for example you could not justify paying her £110 pw).

Alternatively, you could make your wife a partnerin the business. At present the Governments intended clampdown on income splitting (as they call it) is on the backburner. So you could simply allocate a profit share to your wife of £3000 pa. As you are both over 65 she would not have to pay Class 2 NI on this (and you should cease paying it too if you were already 65 on 6 April this year).

Making your wife a partner will mean you have to do self assessment tax returns for you, your wife AND for the partnership.

Thanks for your thoughts Merlin.

Don't think we will go with the partnership, I will just pay her up to £3000 during the year and complete a tax return. She does earn the money, helping me painting and clearing up etc, but only one day per week maximum.

Baileyman

Tiggergirl wrote: »

Maybe I'm missing the point, but if you both have unused tax allowance, why would you want to transfer income to your wife?

Tigger I think you did miss the point. My wife has £3000 spare tax allowance and I have only £1000, therefore if I can transfer £3000 income to her its £3000 tax free

dmg24

Baileyman wrote: »

Tigger I think you did miss the point. My wife has £3000 spare tax allowance and I have only £1000, therefore if I can transfer £3000 income to her its £3000 tax free

It isn't Tiggergirl, it is the way that you have phrased it. I assume you mean the following:

After pension income and before income from self employment, you each have remaining tax allowances of £3000 and £1000 respectively.

Tiggergirl

I read it as you still had £1000 allowance remaining after all your income (including self employed) since you said it would be unused. Therefore after transferring the £3000 you would then have £4000 allowance left.

johnllew

Baileyman wrote: »

Tigger I think you did miss the point. My wife has £3000 spare tax allowance and I have only £1000, therefore if I can transfer £3000 income to her its £3000 tax free

I don't think Tigger did. If you both have unused personal allowances, then transferring income between you is pointless.

ceeforcat

johnllew wrote: »

I don't think Tigger did. If you both have unused personal allowances, then transferring income between you is pointless.

Couldn't agree more - If you do not pay tax - you can't save tax!