anybody 40% taxed? how do you transfer money to partner to balance tax bands / use their personal allowance

[Lexilicious]

Hi, in a nutshell one of us is going to go into the higher rate of tax this year and the other isn't. In the newspaper money pages they always say to married couples to make sure you exploit the tax rates but how do you actually do this?

I always get the sense that it's for a fat sweaty stockbroker giving his little woman at home her £6540 a year (or whatever the personal allowance is now). The image makes me shudder. I know most SAHPs are far more liberated, and probably run the domestic finances better than the stockbroker could.

Anyway, I digress.
Can I somehow 'officially' give my partner a wodge of money to count in his 20% band rather than my 40% band? eg if I earned 44k this year and he earned 28k, could I give him 7k (ie the family tax free gifting amount) and therefore neither of us breaches the 40% threshold? (figures are for example only...!)

Or would both our incomes and all the family outgoings get lumped together if I did a tax return next year, so I'd get the 40% bit rebated?

or is the government going to squeeze me for extra tax even though the recession has cost my lovely DH his job and half his self-confidence in the process? grrrr

What is your tax situation? PAYE? Self employed? Is all your income from a salary or is some from another source? I think we need more info.

Dont forget your ISAs ...

I don't work (sahm) and my dh is employed and earns 34k. Can he transfer some to me to avoid the 40%? I've never heard of this before.

We are paying off a lot od debt so it would certainly help!

OK, more details:

Both PAYE. He was earning a higher-rate salary but as his job effectively ended at the start of Dec, 1/3 of the year is unpaid so that takes him under the threshold. My PAYE situation is complicated by having two jobs, once the PAYEs join up then I will be into the 40% bracket.

I've used my full ISA allowance this year, he's used the cash amount only. We are quite ok for savings, thankfully.

As we don't know when he'll get a job we do need readily accessible money so I don't want to lock away too much e.g. in S&S ISA.

We are paying £25pm into DS's CTF. I have £45pm in charity direct debits.

We are also fixing up a flat to let out - will want to tax-offset the costs of doing that (business expense?) all in FY 09-10. It's all pointing towards a tax return for this year isn't it. Will it help at all that most of this financial activity is in and out of our joint account?

Unless you set up a business and pay him a salary then I don't think you can just pay him some of your wages. If you're thinking of doing that, you need proper advice from accountant / legal person.

I think the general advice is that any taxed savings should be in the name of the person who pays the least tax, so me in our case (me SAHM, DH is wage earner). Put as much as you can into ISAs obviously. If he's got space in a S&S ISA look at absolute return funds rather than shares or unit trusts etc. Absolute return funds aim to make profit no matter what the market if doing, so should theoretically only increase in value rather than potentially lose money. Obviously you've got to look at this in more detail, or get IFA to advise, rather than taking my word for it!

I've got no idea about property development bits (apart from livbing in a house that needs work!)

I don't think you can sign over any of your gross income to your partner, because it is your income and subject to appropriate tax for you.
What you can do is put savings, investments etc in your DH's name to take advantage of his personal allowance and lower tax rate in respect of income on those savings or other investments.

heres a crazy idea, you could just pay the tax you are required to.

Mrs H is correct.

Basically, it makes more sense for savings to be in your DH's name than yours as he will be taxed at a lower rate and can utilise his nil rate band.

However, you can only do this going forward, not retrospectively (i.e. you cant randomly allocate money to him).Therefore, you want to have these arrangements in place for start of next tax year (Apr 6th)

Also, bear in mind that if you transfer money into his account to take advantage of this, then it's his, legally. To (mis)quote the Shawshank redemption "Lexillicious, do you trust your husband?"

On the flat, you need to be clear on the offset rules. It is not usually possible to offset capital expenditure against rental income. You can only offset mortgage interest and running/repair costs. To give you an example, you can't offset the cost of buying and installing a new boiler, but you can offset repair costs to said boiler. Therefore, you cant offset the costs of a refurb.

thanks, that's really helpful about the investments/savings. We'll make sure we do that. I understand the tax is calculated fairly on PAYE but I want to make sure we're doing the best for our family on the management of money once we've got it. I also think I might be overpaying NI because of my two jobs but that's a different question.

Just to get me straight about the married tax situation, a simplistic example but I haven't really thought this through before now: if the joint income is 60k from two couples earning 30k each, they're paying 20% tax on 2 x 23k [=£9.2k], but if it's just one of the couple earning the whole 60k, they pay 20% on the 7k to 40k (ish) and 40% on the 40k to 60k part? [=6.6+8 = £14.6k]

That's quite a difference.

Yes, that's how it works - since the abolition of the married person's allowance, your tax status makes no allowance for whether you are a couple or not, you are taxed on your individual earnings. As the others have already said, you can't give your H any of your PAYE earnings -they are yours and yours alone and taxed as such. Savings on the other hand can be put in his name to make the most of the time he's under the threshold.

quite honestly, it sounds like you need to have a decent accountant.,particularly as you are going down the buy to let avenue with a blindfold on.

Again thanks. I'm all for getting an accountant to look at optimising aspects of our financial affairs but I would like to be able to prepare the papers and be confident that I'm neither over no under paying. I can't possibly under-pay tax as I'm PAYE but I would like to be confident of the amount we would be stacking up in CGT over the life of owning a second property.

But I take a little umbrage at the 'blindfold'! We haven't bought to let, we used to each have a flat that we lived in, now we live in a house together and 'his' flat is therefore available to be let out. It needed work, whether it was to be sold or let, and we've done that. We will be using letting agent but will assess whether to have it managed-let or do management ourselves based on how much work (disruption) that would cause us - I think too much. Sure, we haven't let a property before but I don't think we should be characterised as dimwits just because I didn't know that only running costs not capital costs could be offset. The property let, for the moment, is DH's 'business' to run in the absence of a day job.

So, I agree I am short of knowledge but until now there's been no need to know about personal tax accounting. This post is a great start to give me some things that I need to read up on.

I only have one thing to add here:

"I can't possibly under-pay tax as I'm PAYE"

If you have two jobs which together take you over the 40% threshold for the first time then you almost certainly WILL be underpaying tax.

yeah sorry, I mean that after I've made sure the tax office joins up the two employments via my NI number. yeah that was a daft thing to say.

allowable expenses knock yourself out!

You will definitely need to do a tax return if you want to offset any of the money spent on the refurb - if there's no income this year the loss can be brought forward. I think.

TBH the tax return has very clear instructions as to what is allowable and what isn't and if you follow it all through (i recommend doing it online) you can't go wrong really).

Agree with the others that you can't transfer money to your OH to take advangate of his tax situation without doing some jiggery pokery in line with your sweaty man in the OP.

sorry lexi but your posts dont come across as particularly considered.

You can't transfer earned income to your spouse, but you can allocate joint unearned income as you wish.

If you are doing up a house to rent, you are unlikely to make a profit this year, so there is no advantage in allocating it to one person.

If you have a joint brokerage acct, you can nominate the lower rate taxpayer to take the dividends, as far as I know.

Don't worry about doing tax returns - they are pretty straightforward. It takes me about 5 minutes to do my UK return each year.

She's considering it now, HH. Give her a break.

Do you make use of the childcare voucher scheme? If so, you should be doing this through the higher earner's salary if possible as you will get a 40% tax relief rather than 20%,

The scheme in its present format is unlikely to last much longer so you may want to take advantage while you can.

Will do tax return. I checked the pages and I note that you can save and come back to it, so if you can keep it going as a live document through the year it would be good to see what we owe in tax beyond PAYE at any point.

Have downloaded Tonido Money Manager recommended on another thread.

Have just done my first childcare salary sacrifice this month (well, it's come out of my payslip but I haven't seen the e-voucher yet. It may have gone direct to the nursery. (DH's employer didn't offer a scheme. We were about to make a case for it - on the basis that the employer NICs saved are about the same as the cost of contracting it to one of those third party providers - but then the redundancy thing started)

We don't have a brokerage account but that might be a good idea if I go part-time when DH gets a job again (as he will then almost certainly be the higher earner). I have some shares that I was given for my 21st birthday which I have just sat on.

also, keep a record of who has lived in the flat and when because if/when you sell it, you will need to consider capital gains tax, which can be reduced by owner occupancy. I would get tax accountant to look at this (ie the tax dept of an accountancy firm and not an accountant who may not know a lot about tax).By this I mean allowable capital expenditure and revenue expenditure (one is 'saved up' til you sell and one is a yearly deduction.) Finally, earned income is always taxed on the recipient, so you can't transfer your cash to dh and have it taxed at his rate; you can transfer it to his savings and it will then be taxed as sevings income at 20% provided he stays a basic rate tax payer iyswim?

"I can't possibly under-pay tax as I'm PAYE"

Please do not believe that! Payroll departments make mistakes all the time; with 2 jobs there is even more scope for confusion.

I am currently investigating how one of our employees appears to have underpaid her tax by over £700. She is purely PAYE and really not happy because she assumed the right amount was being deducted.