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A useful tax year-end checklist to help couples mitigate tax in 2024

Joint planning at the end of the tax year could help you and your partner save money. Read our tax year-end checklist for couples to learn how.

15/02/2024
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Money can be a contentious issue in relationships, especially if both parties have a different approach to their finances.

Indeed, according to marriage.com [1], money is second on the list of the top things couples argue about.

However, there is another side to this as couples who do work together when it comes to their finances often enjoy a happier, more stable relationship.

According to research conducted by Indiana University [2], couples who had a joint bank account reported a higher relationship quality after two years than those who didn’t. They also communicated more effectively and viewed themselves as a team.

So, by making decisions about your wealth together, you and your partner could create a happier, healthier relationship. Interestingly, it could also help you mitigate tax.

There are several ways that joint planning could help you reduce your tax bill, including using certain allowances and exemptions that reset at the start of a new tax year. As the end of the tax year approaches on 5 April 2024, it’s important to take advantage of these opportunities now.

This tax year-end checklist for couples could help you and your partner save money in 2024.

1. Use the Marriage Allowance

The Marriage Allowance could be an effective way to mitigate Income Tax if one partner earns less than their Personal Allowance – the amount you can earn before paying Income Tax – of £12,750 in the 2023/24 tax year.

Provided their spouse or civil partner is a basic-rate taxpayer, the lower earner can transfer up to £1,260 of their Personal Allowance to them. This could reduce the higher earner’s tax bill by up to £252 in 2023/24.

Additionally, you can backdate your Marriage Allowance claim to include any tax year since 5 April 2019. This could add up to a significant saving on your Income Tax bill.

So, it may be worth checking whether you or your partner are eligible for the Marriage Allowance before the end of the tax year.

2. Consider sharing your savings

Saving in an ISA is a relatively easy way to mitigate tax as you don’t pay Income Tax on any interest you generate on savings held in a Cash ISA. You also don’t pay Dividend Tax or Capital Gains Tax (CGT) on investments in a Stocks and Shares ISA.

In 2023/24, individuals can contribute up to £20,000 across all their ISAs and still receive these tax benefits. So, if one of you is close to reaching this threshold, you might want to share your savings with your partner.

By dividing your savings, you may be able to use up both your ISA allowances and hold more of your collective wealth tax-efficiently.

This could also benefit you if you hold savings in a non-ISA account too. This is because you will typically pay tax at your marginal rate of Income Tax on any interest you generate that exceeds your Personal Savings Allowance (PSA).

In 2023/24, this stands at:

  • £1,000 for basic-rate taxpayers
  • £500 for higher-rate taxpayers
  • £0 for additional-rate taxpayers.

If you’re close to exceeding your PSA, you might be able to mitigate tax in the future by sharing your savings strategically and using both your allowances.

Additionally, if one of you is in a lower tax bracket than the other, it may be useful for them to hold more of your savings as they will have a higher PSA and pay tax on cash savings interest at a lower rate.

3. Be strategic with your Capital Gains Tax Annual Exempt Amount

In 2023/24, you can earn gains of up to £6,000 from selling or transferring ownership of qualifying assets before you pay tax. This is known as your “Annual Exempt Amount”.

However, you usually pay CGT on any profits above this threshold. The rate that you pay depends on your marginal rate of Income Tax.

You could pay:

  • 10% if you’re a basic-rate taxpayer (18% for a residential property that is not your main home)
  • 20% if you’re a higher- or additional-rate taxpayer (28% for a residential property that is not your main home).

Luckily, with some strategic planning, couples may be able to reduce the CGT they pay.

You both have your own Annual Exempt Amount and can pass assets to a spouse or civil partner without paying CGT.

If they eventually sell the asset, CGT is usually calculated based on the value when you purchased it compared with the price they sell it for. But crucially, any profits count towards their Annual Exempt Amount, not yours.

So, you could still reduce CGT by transferring assets to a spouse or civil partner to sell because it may allow you both to stay within your Annual Exempt Amount.

It’s also worth remembering that one person may pay CGT at a lower rate than the other if they’re in a lower tax bracket. Passing assets to that person to sell could mean that you pay less CGT as a couple.

Being strategic with your Annual Exempt Amount in this way may be more important in the future as this threshold is set to fall to £3,000 on 6 April 2024.

That said, the CGT rules can be complicated and if you’re not married, you may pay more tax when passing assets between you. It could be beneficial to seek professional advice before selling any assets to ensure you’re being as tax-efficient as possible.

4. Share your non-ISA dividend-paying investments

If you have investments outside an ISA that pay dividends, you may be subject to Dividend Tax.

In 2023/24, you have a £1,000 “Dividend Allowance” before tax is due. Any dividend income that exceeds this threshold will normally be taxed depending on your marginal rate of Income Tax.

You could pay:

  • 8.75% if you’re a basic-rate taxpayer
  • 33.75% if you’re a higher-rate taxpayer
  • 39.35% if you’re an additional-rate taxpayer.

You may be able to reduce the Dividend Tax you pay by sharing non-ISA investments between you and your partner. This could reduce the amount that each of you receives in dividends, so you are more likely to remain within your allowance.

If it’s likely that one or both of you will exceed your Dividend Allowance, you may want to transfer investments to the person in the lowest tax bracket, if applicable. You may also want to ensure that you use both your ISA allowances before investing elsewhere.

Bear in mind that there may be CGT to pay when moving assets between you, so it might be worth seeking some professional advice first to understand the potential tax implications.

5. Consider third-party pension contributions

Your pension is an excellent tax-efficient vehicle for building your savings as you typically automatically benefit from 20% tax relief on any contributions.

You may also be able to claim more tax relief through self-assessment if you’re a higher- or additional-rate taxpayer.

In 2023/24, you can contribute up to £60,000 (or 100% of your earnings, whichever is lower) to your pension, including employer contributions, while still receiving these tax benefits. This is your “Annual Allowance”.

Unfortunately, many couples overlook an opportunity to maximise the tax relief they receive by making third-party pension contributions.

For example, if you pay into your partner’s pension, the contributions count towards their Annual Allowance and they still receive tax relief. So, if you’ve used your full Annual Allowance but your partner hasn’t, you could continue making contributions to their pension.

That way, you use as much of both Annual Allowances as possible and potentially build more retirement savings as a couple.

Bear in mind that you or your partner may have a reduced Annual Allowance if you have flexibly accessed your pension already or if your earnings exceed certain thresholds.

Get in touch

We can help you explore opportunities for joint planning so you can achieve your financial goals together.

Please visit our contact page or speak to your adviser.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

[1] 18.01.2024 Top 10 things that couples argue about the most marriage.com

[2] 18.01.2024 Married couples who merge finances may be happier, stay together longer Indiana University

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Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

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