The love tax… is a little old thing, which we can pay together
Whoever said that accountants lacked imagination? The image of George Osborne flying through the air armed only with a nappy and a bow and arrow certainly requires some sort of creative bravery.
Somebody at Accounts and Legal, a London-based small business accountancy practice, has either fallen victim to a particularly understated strain of the love bug or is simply good-looking enough to compensate for all manner of romantic failings. Moneywise is in no position to judge and we promise not to.
Either way, they’ve decided to come up with 5 tips for tax-based Valentine’s Day gifts (what a sentence) that won’t exactly be knocking the new Milk Tray man off his 3-storey ladder in submission. We present them here:
1. The marriage allowance.
If you’ve gone the whole shebang and one of you has got down on one knee at some point in the past, you can save up to £212 a year using the Marriage Allowance, which was launched in April 2015. You need to apply online to do this. You can do so at www.gov.uk/marriage-allowance
2. Income tax and dividends
Setting up your spouse as a shareholder or director in a company you’ve set up would allow you to distribute income depending on personal allowances.
Additionally, the new dividend allowance, which gives you £5,000 before tax hits at 7.5%, would allow you to spread your income between the two of you and reduce your income tax liability.
You can read more about tax rates, limits and allowances for 2015/16 here.
3. Inheritance tax
If you’re married (or in a civil partnership), anything you leave to your partner upon your death will be free of inheritance tax. If you’re the one who remains above ground, you can also inherit their nil rate tax band, meaning you could pass over £650,000 of tax-free assets to your hopefully grateful children.
4. Capital gains tax
If married, your combined capital gains tax (CGT) allowance will be set at £22,200. You can also transfer or gift assets between spouses tax-free, allowing you to make use of the person with the lowest tax rate to lower your exposure.
Not in the general spirit of Valentine’s Day – our friend at the accountancy firm was really scraping the barrel here, but another way for spouses to save money is when the other party passes away. Currently, when a husband or wife dies, the person left can inherit their entitlement. However, this all changes come April when the system is shifted to a single-tier pension.
And finally, once you’ve put your calculator away, you could always try…
6. Flowers (a bonus one from us)
Yes, roses are a classic but a little clichéd, don’t you think? Although, if you’re quick, you can buy them very cheaply at Aldi, which has a special deal on 100 red roses for £25.
Alternatively, recreate Van Gogh’s kitchen table with some bright, cheerful sunflowers that will nod their happy heads at the target of your everlasting love – or how about some gerbera daisies? Bright, bold and they come in an array of dazzling colours.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.