Tax Taxing times Planning to pay less tax In the current tax year, a married couple or couple in a civil partnership each have a personal allowance of £5,035 (if they are under the age of 65), below which no income tax is paid. The lower rate of 10 per cent is charged on the next £2,150 of income, followed by the basic rate of 22 per cent between £7,185 and £38,335, above which the top rate of 40 per cent is payable. In many households only one partner may be working, or one may be paying higher-rate tax. It therefore may make sense to arrange for any investments to be held in the name of the spouse with the lowest tax rate. You may be concerned that transfers of assets, particularly shares and unit trusts, could give rise to further tax bills. Fortunately, for those who are either married or in a civil partnership, gifts of assets can be made between partners without any tax applying. It is not just income tax that can be saved by this means – there are capital gains savings to be made. Everyone is entitled to a single capital gains tax allowance, currently £8,800 in this tax year. One spouse could transfer shares, property or unit trusts to the other without triggering a capital gains tax bill. Their partner would then sell the assets using their own capital gains tax allowance. When the assets have been held for three years or more they will usually have started to clock up taper relief. This is the system in which the amount of your capital gain for tax purposes is discounted the longer you hold the assets. For non-business assets it reduces the capital gain by 5 per cent after three years and 10 per cent after four years, up to a total of 40 per cent after 10 years. Assets transferred between spouses or civil partners can carry over the benefit of any accumulated taper relief, so it is not wasted. From birth, children are also entitled to personal allowances for income tax and an annual exemption for capital gains tax; with careful planning this relief need not be wasted. For example, it is possible to make acquisitions in the name of your child, even if they are under the age of 18, using a Bare Trust. This is a simple document that your solicitor could arrange and would enable their annual capital gains exemption to be used. The position is more complicated for income tax because we need to consider where the money has come from. Income of up to £100 in respect of each parent is ignored where the income arises on an account held for a child where the money has come from one of the parents. However, if the amount is more than that, the income is assessable on the parents. This rule does not apply if the money has come from anyone else, such as a grandparent. Finally, relatives can be particularly helpful in family businesses. If you have a private company it may make sense for the shares to be held by both spouses – and often the children as well, particularly if they are adults. This means that dividends can be paid on the shares to take advantage of the personal allowances and basic-rate band available, although it is no longer possible to reclaim tax on the dividends. If you would like to find out more, please email or contact us for further information. Levels and bases of, and reliefs from, taxation are subject to change. Quote source: Telegraph Media 18.10.06