28th September 2017 at 7:00am
When you’re part of a family, making the most of everyone’s tax and savings allowances can make a real difference when it comes to building up your savings and managing your family’s wealth.
It’s something that could be particularly useful if you’ve more wealth than the average person.
First: think “ours”… not “yours” and “mine”
Of course, sharing tax and savings allowances is likely to mean giving up some control of your money. We’d suggest you speak to a financial planner to get some peace of mind about how it works and make sure your finances work for all of you.
It’s well-worth highlighting that some rules can be different when you’re cohabiting, not married.
We know there’s a lot to think about and we can’t cover everything here, but here are some of the steps you can take to help you make the most of your family’s money.
Double up your ISA allowances
You each get this year’s bigger £20,000 ISA allowance. Using yours and your partner’s allowance lets you save £40,000 as a couple. You don’t need to pay tax on any income or gains.
There’s plenty of time to make use of this year’s ISA allowance, whether that’s stocks and shares, cash, or a mix of both.
Read about the ISA allowance in our article ‘Make the most of this year’s bigger £20k ISA allowance’.
If you’d like to get an idea of what your ISAs could be worth in future, try our ISA calculator.
You can share your pension saving
Flipping pension saving between family members can be a better option than saving into ISAs.
It’s because pensions are brilliant at being tax-efficient thanks to tax relief when you’re saving.
If one of you pays more tax than the other, diverting your pension savings to the highest earner is usually a good option as you normally get tax relief from your contribution based on the higher tax rate – and you’ll get more. Read more about this in our article on ‘Tax relief: the magic ingredient to boost your pension’.
The tax breaks are generous, although there are restrictions on how much can be paid in.
How much you can pay in is limited to how much you earn, up to an annual allowance of £40,000. The good news is you can also claim any unused allowance from the last three years.
If your income is over £150,000, how much you can pay into your pension could be just £10,000 each year – but making the most of your partner’s allowance can help you save more. It’s usually sensible to use up your own annual allowance first.
Again we’d recommend you take advice on this.
How sharing can manage the pension lifetime allowance
Then there’s the lifetime allowance for pensions over £1m. If your pension pot is worth more than this when it’s time to take your benefits, the excess is taxed.
If your pension pot looks likely to grow to this impressive figure, making pension contributions to your spouse, partner or family members’ pensions rather than your own could be one way to save tax in the long run.
If it’s something you’re interested in, it’s well worth getting guidance from a financial planner.
Remember you can apply for the marriage allowance
Many people forget about this fairly recent tax break. Transferring £1,150 of the standard £11,500 tax-free Personal Allowance between a husband, wife or civil partner can save a couple up to £230 in a tax year.
The higher earner needs to be a basic-rate taxpayer earning under £45k (it’s £43k in Scotland), with their spouse on an income of £11,500 or less.
You need to apply for it at Gov.uk. Use the online tool to find out how much you could save between you.
Whose name your savings are in matters
Planning how you manage savings which aren’t in tax-free wrappers such as your ISA and pension can make a big difference too.
- Capital Gains tax: Shares outside of an ISA and some high-value personal possessions such as art are some of the things you may need to pay Capital Gains Tax on. Transferring assets between you and your spouse to change who’s taxable and controlling when the tax is payable.
The result is you could get an extra CGT allowance of £11,100 and you might pay 10% tax on your, rather than the full 20%. If you have a second home, CGT is still charged at 18% and 28%.
- Dividend allowance: Everyone has a tax-free dividend allowance of £5,000, which is changing to £2,000 in the next tax year. This can help if you receive dividends from shares or collective investments such as unit trusts or OEICs.
- Personal Savings Allowance: It’s £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers; additional-rate taxpayers don’t benefit. This could open up two sets of allowance for any interest you get from your savings from bank accounts.
If you want to make sure you make the most of what you’re entitled to, we recommend you speak to your financial adviser, particularly when your circumstances or tax laws change.
This article shouldn’t be regarded as financial advice. Tax and legislation may change, and the information here is based on our understanding in September 2017. Your own circumstances will have an impact on tax.
The value of an investment can go down as well as up. You could get back less than you paid in.