Additional tax savings for married couples
While the tax rules for married couples are complicated, they can allow people to legitimately or tax-legally shift their benefits between each other to reduce their tax burden.
Here we provide an overview of some of the manners a couple can use to do this. However, given the particularly complicated nature of tax identification for married couples, it may be advisable to contact an expense professional who will be able to conduct a full review of your individual situation.
If one of you doesn’t pay income tax: Marriage subsidy tax update
Marriage Allowance can be useful for couples where one person does not receive the exact personal allowance and the other person pays personal tax at the basic rate, which in 2019/20 generally means their salary is somewhere between £12,500 and £50,000. The marriage tax remittance increased from £1,190 in 2018/19 to £1,250 in 2019/20. This means the potential tax saving from the higher employee bill is up to £250 in 2019/20.
So to benefit from the Marriage Allowance you should be married to (or in a civil partnership with) someone who doesn’t file a personal tax return or whose salary is less than £12,500 a year. You should also be a property taxpayer. It doesn’t matter whether you live abroad or receive social benefits — as long as you have an individual tax refund, you can apply for marriage allowance.
The person with the lowest salary must apply for the marriage allowance online. The claim may take up to two months to process. The person with the higher salary will receive their new personal allowance when they file their next self-assessment tax return.
If you both pay income tax: Form a partnership
If you are both property taxpayers, one option is to form a business association. Colleagues share responsibility for any misfortunes the business may suffer, any bills the business acquires, and any benefits derived from the business — yet each partner only pays taxes on their offering. By forming a partnership, you avoid an individual applying the higher annual tax rate.
Example
As a couple you will gain £50,000 from the lease. If this is an individual’s wages, they would pay the higher income tax rate — 40 percent. 40 percent of £50,000 implies a tax bill of £20,000.
If this lease is paid to a company and each partner has a 50 percent share, each partner will receive £25,000 in rent. This corresponds exactly to the necessary pace of income tax – 20 percent. 20 percent of every £25,000 is £5,000 each.
The couple’s absolute tax burden is £10,000. Even if the portion of the property is not equivalent, the interest payments and associated policies vary. We recommend that you contact a property tax professional to review your tax allocation.
You must choose a name for your business (it cannot be too similar to the name of an existing organization) and select a “select partner” who will be responsible for filing tax returns for the business. The named accomplice must register the connection with HMRC.
The two people in an organization must be registered with HMRC. The two accomplices must submit their own self-assessment tax returns and cover personal taxes.
It is a smart idea to form a Limited Liability Partnership (LLP). Partners in an LLP are not liable for obligations that the business cannot pay — giving you greater peace of mind if your business has problems in the future.
If you may pay higher income tax: Form a limited company
Limited companies are legally insulated from the people who run them, have separate accounts from the people who run them and can retain any benefits they receive after paying corporation tax.
The advantage of a limited company is that you can pay yourself a salary within the usual tax rate and claim marriage allowance for your partner or pay your partner other compensation. The rest of your benefits will be paid out as winnings to individuals with an offer in the organization. Offers can also be bought, sold and moved if you want to integrate more people from your family into the company. This method ensures that you do not end up paying the higher annual tax rate.
The obstacle is that setting up a limited company requires more effort than setting up an association.
They must select an organization name and registered address, delegate leaders and an organizational secretary, prepare and issue a proposal, and create a memorandum and articles of association that establish the guidelines for the organization’s governance.
It’s only worth it if you earn more than £92,700 in rent each year (the necessary transfer for two people).
5. New purchase and rental changes for 2020/21
As if the purchase price tax wasn’t complicated enough, the guidelines also change regularly. A number of new measures were introduced in the 2020 tax year that property owners can familiarize themselves with.
These include changes to tax assistance for contract intrigues, capital surcharge tax remittances and changes to the way capital gains tax is paid on investment properties where you previously lived.
Tax relief for mortgage interest
In 2017, the government began phasing out mortgage interest tax subsidies by 25 percent each year and planned to phase it out completely by 2021. Therefore, 2019 was the last year that landowners were able to deduct the interest paid on their home loans from their salary.
Rather, property owners currently receive a 20 percent tax refund for all costs they incur for their property. The purpose of the approach is to increase the tax rate paid by higher or additional tax rate owners who previously received generous tax breaks. Property tax rate taxpayers are likely to end up paying almost the same amount as before.
