Taxing question for financial wizzards.

[lolapalooza]

I work, dh looks after both our kiddies.
It has recently ocuured to us to put our savings in his name alone to save on tax.
At the moment all savings re in my name. I pay tax at 40%.
Dh officially has no earnings. If I transfer all the savings in my account to an account in his name, will the savings ( about 25k) be considered his "earnings" for the year, ie he will be taxed on the whole 25 k as if he had earned it? Or will he only be taxed on interst on the savings if the interest rises above the £3,800 or whatever it is below which you dont pay tax.
THANKS LADIES!

[mollipops]

lolapalooza, I believe the latter is true as it would be deemed a "gift" and not salary so he wouldn't need to declare it. I assume he doesn't do a tax return anyway and can't see the interest ever getting that high! Sounds like a very good idea! HTH

[bells2]

Definitely the latter is right. In the UK you can transfer asets between husbands and wives without any tax implications. Putting savings/investments etc in a spouse's name is one of the major financial advantages of only having one parter working.

[bossykate]

yes bells absolutely right.

[Ems]

lolapalooza, when you open the account in his name, make sure you ask and fill in a form R85 (I think) this is to receive interest without tax taken off.

Neither of you will be taxed on that money if you transfer it.

[bossykate]

hello again

you can also both use up your isa allowances for the year, which will mean that any interest you get is tax free.

[lolapalooza]

WHOOPS- FORGOT TO MENTION we are not actually married but have been cohabiting for several years....does this make a difference?

[bossykate]

have just been to www.inlandrevenue.gov.uk - it specifically refers to transfers between husband and wife, no mention of co-habiting couples...

you should probably give them a call to check the situation or your local citizen's advice bureau may be able to help.

[robinw]

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[AliH]

Lolapalooza - yes, I am afraid that your non married status does definately matter (same as us).

Transfers between husbands and wives are not taxable, and are one of the main advantages of being married (from a financial point of view that is). This perk is not extended to co-habitees.

All of the other comments are correct, except be careful mollipops, even if the partner/spouse doesn't currently fill in a tax return, you are legally obliged to request one if you need one, ie if your circumstances change. Granted though, interest would have to amount to about 18ish percent to become a concern. If you can earn that, let us all know.

[MiriamW]

There are a few different taxes which you will need to consider:

For income tax, the £25,000 will not count as income, and will not be taxed as such. However the interest arising from it will then be in your DPs name and will need to be declared if it exceeds his personal allowance. Make sure that he lets the bank know that he is a non-taxpayer - there is a form to fill out in order to get the interest tax-free. Subject to comments about him running away with the money, what you are proposing does make financial sense.

The other two taxes to consider are capital gains tax (CGT) and inheritance tax (IHT): these are the taxes where transfers between spouses are exempt. CGT does not apply to transfers of cash, but would apply if you were to say transfer shares to him. Provided you give him a cheque you're OK.

As for IHT, inheritance tax will apply if you die within the next 7 years. The rate decreases over the period. IHT will only apply if your total estate (including your share of the family home etc) exceeds the amount of about £250,000. Without deviating from the thread too much, if your estate is above this at present, then you must seek professional advice regarding your will: IHT will have to be paid on the event of your death, and you need to make sure that you have considered this, as in the worse case your dp may have to sell the house. It used to be a small percantage of people who were affected by this, but with current property prices, and say work-related death in service benefits, it is very easy to get over the limit these days.

[lolapalooza]

Thanks Miriam and can I just clarify.
Remember we are NOT married.
The £25k is in an egg account at 4.5% interest. Egg are offering 5% for 6m on new accounts. If we set up a new account in DPs name and I transfer the dosh he WON'T be charges GCT for everything above his CGT allowance ( about 7k I think), right? Just tax on interest over and above his personal allowance if the interest on the lump sum goes above the £3,800 or whatever it is?

[MiriamW]

That's correct - for gifts of cash (sterling rather than foreign) the only tax at stake on the actual transfer is IHT, and then only in the event of your death within the next 7 years.

This is the link for your partner to claim to be paid gross interest www.inlandrevenue.gov.uk/taxback/index.htm


Hope this helps

[bossykate]

i wonder if any capital taxes experts out there could please help?

if you inherit a house (assume value £500,000) from a parent, you would be liable to iht on this bequest. if you subsequently sold the house (not having moved into it) would you then also be liable to cgt on the sale of the house?

Assuming the house is worth £500,000 would you then have to pay

40% x 250,000 - iht on the bequest

PLUS

40% x 500,000 - cgt on the subsequent sale

a total of £300,000 in tax? seems like a lot!

what steps, if any, could you take in advance to minimise this liability?

thanks in advance for your help. i'm an accountant but capital taxes are not my speciality and i can't find anything specific about this on the ir website.

thanks again

[robinw]

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[philly]

IHT is levied on the value of the estate and not on the value received by the recipient.The total value of the estate plus any chargeable transfers out of the estate less any specific exemptions (there are quite a few of these) is then totaled and the balance subject to iht.Remember everybody has a nil rate band of ,I think now approx £350,000 so idf the house was in the joint ownership of two people then no IHT depending on the value of the estate in total.
This is quite a complex subject but for general advice on the basic law try the Inland Revenue website,another good source is accountingweb.co.uk
I am also an accountant and this is my area but type slowly so difficult to give comprehensive advice!
CGT is only payable on the difference between probate value and sale value remeber you also get taper relief although not at the higher rate,plus if you live in the house as main residence then no tax as PPR relief.As I said this is a complicated subject and you really need to look at an estate in total but hope the above is some help.

[philly]

N>B> only chargeable transfers in the past 7 years are relevent.sorry

[bossykate]

Thanks very much, robinw and philly. i knew mumsnet wouldn't let me down! very helpful.

thanks again.