Married folk - use BOTH tax allowances

yabbadoo

I'm looking for confirmation of this tax-efficient tactic, which may be beneficial to other married couples.
Situation - Over 65 and married.
Income sources -
Self, Company and State pensions, some capital yielding £2000 annual interest, and cash-only ISA's.
Wife - not yet of pension age, income NIL, plus cash-only ISA's.

Tax-efficient tactic -
Gift the capital to the wife (into ICICI and similar high-interest accounts) backed with tax forms R85, so she receives Gross interest.

Per the Inland Revenue website - Gifts between husband and wife incur no tax liability. There appears to be no requirement for formal documentation, the only proviso is that the donor has neither control nor income from the gift.

Result - Wife's income is tax-free. My tax liability benefits from Marginal Age Allowance as my income is reduced by the £2000 investment income.

Other than a social risk (the wife leaves me!!) is this best practice, or can I do better?

Final point - just discovered by accident that JOINT account interest can also benefit when one account holder is not liable to tax. (Form R85 again). It seems that irrespective of the account's income sources, the Revenue deems the interest to be split 50/50, and allows tax-free status accordingly.

RayWolfe

Yep, you should have been doing this years ago. Welcome to the world of the MSE.

Don't forget, she may decide to buy shoes and handbags rather than do this silly savings thingy

debbie42

Yup, lots of posts about the pros and cons, if you do a search, but basically cash transfer between spouses can be a good way of saving tax.

I consider the extra income to more than compensate for the occasional shopping splurge, which I'd be having anyway :rolleyes:

yabbadoo

RayWolfe wrote: »

Yep, you should have been doing this years ago. Welcome to the world of the MSE.

Don't forget, she may decide to buy shoes and handbags rather than do this silly savings thingy

Ah well, after nearly 30 years of marriage, she's entitled!

JimmyTheWig

Absolutely right, on both counts.

Mikeyorks

yabbadoo wrote: »

Final point - just discovered by accident that JOINT account interest can also benefit when one account holder is not liable to tax. (Form R85 again). It seems that irrespective of the account's income sources, the Revenue deems the interest to be split 50/50, and allows tax-free status accordingly.

All correct ..... with the possible exception of 'Form R85 again'. Not all Institutions will allow you to file an R85 for just one of the parties in a joint account ..... it's both or neither.
In which case you just have to have the tax deducted at source .. and reclaim after the year end.

On the general 'tax efficiency'. Don't forget that in this last Budget .... whilst the 10% tax band was abolished ..... a new 10% Savings band (to £2320) was created. This operates in the zone formed by "£personal allowances + £2320". If savings interest hits that zone then the amount above personal allowance but below 'personal allowance + £2320' .... is only at 10%. Possibly not relevant now .... but may well be when your wife receives a pension. As it allows the mechanism you've now realised can be beneficial ..... to operate for longer - but potentially at a reduced rate.