Question of the week: Tax on savings

Former_MSE_Alana

Q. I'm a housewife earning £2,000 from a part time job, but have a husband pays income tax. Can we open up savings in my name to receive interest without tax being deducted? Terry by email

Martin's A: Yes, yes and yes. It's a great way for a couple, where one earns less to gain. Under 65s can earn up to £6,475 from work and savings interest combined. So unless your savings interest is massive (over £4,500 - meaning hundreds of thousands saved) there will be no tax on it.

The same trick works if one of you were at a basic taxpayer rate and the other at a higher one. It's always financially worth saving in the lower taxpayers name, though of course it does raise issues of trust.


[threadbanner]box[/threadbanner]

Aegis

Also works for capital gains tax with investments. Both partners have their exemption limit and an unlimited ability to transfer assets to each other tax-free, so both capital gains tax allowances can be used AND one partner can hold the assets while income is being generated to minimise the total tax due.

jollyme

I've often wondered about this one. Won't the tax office start asking questions about a couple suddenly move large-ish sums of money previously in one partner's name to an account in the other partner's name? Or is really not of anyone's concern other than the couple themselves?

Aegis

jollyme wrote: »

I've often wondered about this one. Won't the tax office start asking questions about a couple suddenly move large-ish sums of money previously in one partner's name to an account in the other partner's name? Or is really not of anyone's concern other than the couple themselves?

The tax office might ask questions, but probably not. The transfer of assets between spouses is completely tax free and legal in all cases, so this is a matter of tax avoidance (i.e. legal) rather than tax evasion (i.e. illegal), so such questions would be a complete waste of their time.

stingyscot

We've done this for years, as 1 of us doesn't earn and the other is a 40% taxpayer.

Jonbvn

We have being doing this for several years. OH is quite wealthy, and I hold few assets outside of the house (which is shared between me & OH).

kostigovs

stingyscot wrote: »

We've done this for years, as 1 of us doesn't earn and the other is a 40% taxpayer.

Likewise with my wife and myself. She earns it and I save it in my name

Primrose

As always in these case, it's essential to have complete trust in your partner if your money is being invested in their name, and vice versa as once money has been put into somebody else's name you it becomes their property and you lose all legal rights to it. This is a completely legitimate tax avoidance device in marriages which are 100% trustworthy. In those that are not, it's a risky venture.

Lokolo

I think Martin should also point out that the money then technically bcomes hers so she can go and spend it, as women do, and the bloke can't say anything but 'damnit, never trust women!'

Biggles

Lokolo wrote: »

I think Martin should also point out that the money then technically bcomes hers so she can go and spend it, as women do, and the bloke can't say anything but 'damnit, never trust women!'

Yes, the subject of ownership of the money is rather skimmed over in his reply but is worthy of very serious consideration.

dave2

You also have your own ISA limit - even if you increase your hours in future the interest on the ISA's you've built up will remain tax free.

For other savings mind to notify the bank that you don't pay tax, so they can pay it gross and the interest will compound (also saves the bother of doing a claim).

BTW this is more complicated with dividends as the tax credit is notional - HMRC take it off the tax you owe them but they will never pay it out if you're due a refund. Only be better to shift if the earner is on higher rate. OTOH there's the CGT to consider, may be worth splitting holdings just for that, but given the £8k exemption again it's perhaps not worth the bother unless have qute the investment, are higher rate and/or intend to have a long time holding that would be sold in big chunks (i.e. big gains).

As for trust issues wonder if it makes any difference if the lower-earner signs over some of their share in the house each year? I.e. earner puts £30k in houseperson's bank, houseperson signs over 10% of their £300k house. Courts seem to do what they like in divorces mind you...