Tax Tip 30: How to save tax by transferring assets to your spouse

There are very few tax benefits available to married couples as compared to single people.

There is now no married couple’s allowance unless the elder spouse was born before 6 April 1935 – so you would have to a married couple over 75 to benefit from this.

Two areas where married couples can use the rules to save tax are Capital Gains Tax and Inheritance Tax.

Capital Gains Tax

All individuals have an annual capital gains tax exemption of, currently, £10,100 (2010/2011 tax year).

However, for a married couple that is potentially doubled to £20,200.

The reason for this is that you can transfer assets which are subject to Capital Gains Tax between spouses completely tax free.

Thus, if you know that you are going to sell shares in the tax year which will generate a gain of £15,000, you could transfer to your spouse the shares which were likely to tip the gain over and above £10,100.

The same would be the case with a second property. You can make sure that you and your spouse shared the gain to take advantage of both annual exemptions.

Inheritance Tax

Inheritance Tax is usually paid on an estate when somebody dies. It’s also sometimes payable on trusts or gifts made during someone’s lifetime. Most estates don’t have to pay Inheritance Tax because they are valued at less than the threshold (£325,000 in 2010-11).

Increased threshold for married couples and civil partners
Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000 in 2010-11. Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die.

If someone leaves everything they own to their surviving spouse or civil partner in this way, it’s not only exempt from Inheritance Tax but it also means they haven’t used any of their own Inheritance Tax threshold or nil rate band. It is therefore available to increase the Inheritance Tax nil rate band of the second spouse or civil partner when they die – even if the second spouse has re-married. Their estate can be worth up to £650,000 in 2010-11 before they owe Inheritance Tax.

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