www.InvestmentGuide.co.uk
www.InvestmentGuide.co.uk A wife's income
A husband and wife's income are treated
separately for tax. A wife has her own personal tax allowance which can be set
against investment income as well as earnings. She also gets her own tax return
if necessary although not everyone is sent a tax return every year.
Non-earning or part time earners Where a wife has no earnings, or her earnings are below her personal tax allowance for the year, she will be a non-taxpayer and should be able to avoid tax on income in the 2008-2009 tax year of up to £6,035 (click for previous years) which would be generated by investments worth around £120,000.
Minimising tax on investment income
Where a husband pays tax at a higher rate than his wife, it's worthwhile arranging for the wife to receive all or most of any investment income so that it's taxed at 20% instead of 40% or perhaps not taxed at all.
If a wife doesn't have money of her own, a husband can give her money (or assets such as shares or commercial property with rental income) to enable her to have income which can be tax free up to the amount of her own personal tax allowance and then will be liable to the 20% tax rate.
There is currently no capital gains tax, inheritance tax or stamp duty to pay on the gift of money or assets to a wife. Money can simply be taken from bank, building society or other accounts in the husband's or joint names and put it into an account or accounts in the wife's sole name. Income from accounts in a single name will be treated as the income of the person whose name it's in.
If this does not appeal to you, assets (e.g. shares, unit trusts) can be held jointly and husband and wife can make a declaration that the asset is owned in unequal shares or indeed entirely by one of you (in which case declare that the other is acting as a nominee). This should be done on tax Form 17.
Signing a declaration which says a husband or wife owns, say 95%, of a jointly held asset, legally makes him or her the owner of it. In the event of a separation or divorce, that spouse would be entitled to the money.
HM Revenue & Customs will not accept a declaration that a joint bank or building society account is owned in unequal shares.
Despite this, it may be possible for you to own such investments in unequal shares. This would only be of any practical significance in the event of subsequent separation, divorce or death. In order to do this husband and wife should type or write the following on a sheet of paper substituting their own names, appropriate percentages and details of the account:
"We Sara Jane Smith and Arthur Peter Smith of 24 Rose Crescent, London SW16 declare that our joint account at ABC Building Society No S9076655 (or all our bank and building society joint accounts) are beneficially owned as tenants in common in the following proportions: Sara Jane Smith 95%, Arthur Peter Smith 5%." The document should be signed, witnessed and dated and kept by the spouse with the larger ownership.
In this case, HM Revenue & Customs will tax you as if the account is owned in equal shares but Sarah Smith hopes to retain ownership of 95% of the money. Of course if an acrimonious divorce follows a judge may decide to divide the assets in a different ratio.
Payment without deduction of tax
Where one spouse's total income in the tax year is less than his or her personal tax allowances (single or age), interest from UK banks and building societies can be paid without deduction of tax. Details are in a leaflet IR110 A Guide for People with Savings from Inland Revenue Leaflets & Booklets Home Page which also has an application form at the back; you need one leaflet and form for each different account. Many banks and building societies allow you to have half the interest on a joint account paid without deduction of tax where only one of the holders is eligible.
However if a wife's income is, say, £6,000 a year (which is slightly above her personal tax allowance) she is not eligible for interest to be paid without deduction of tax, even though most of her income may be not liable for tax. In that case she might consider investing in an investment where no tax is deducted to save the trouble of applying for a tax rebate. The following are such investments but are not necessarily a good investment at the present time:
Interest with tax deducted at source
Most banks, building societies and local authorities deduct tax before you get your interest at 20%. This tax can be reclaimed if you are not a taxpayer on part or all of your income. The same applies to Stock Corporate Bond; and to some people who holdStock Government Fixed Interest and Stock Government Index-Linked if you bought through a stockbroker before 6 April 1998 or you chose to have tax deducted on new holdings bought after that date. Keep these vouchers too. Claims can be made up to five years late - you get interest on all but the first year.
Getting a tax rebate
If tax is deducted from income of any type and a wife has been unable to make use of her personal tax allowance, she can claim a tax rebate. See HM Revenue & Customs Leaflets & Booklets Home Page. You can make a claim for a rebate of tax on income or interest received for the previous six years.
Dividends
The 10% tax credit on dividends cannot be reclaimed.
Married allowance
The married allowance was abolished from 6 April 2000.
Capital gains tax
A wife is completely separately taxed for capital gains tax. Transfers between husband and wife and vice-versa, however, can be made without any penalty or tax in order to utilise the capital gains tax exemption limits. The starting point for working out the gain on an eventual disposal is the date and value of the original acquisition (not the transfer to a spouse).
Husband and wife can only own one main residence between them. If they have more than one they can choose which is to be the main one and it is that one which is exempt from capital gains tax. This contrasts with an unmarried couple with two homes who can get two main residence exemptions if they own one home each and each choose the one they own as their main residence.
Wives over age 65
If you are age 65 or over, or your husband is or you both are, turn to Boosting Your Retirement Income.
 Last updated 14 May 2008 |
Previous chapter | Next chapter |
| If there's anything you think should be included or you don't understand send us a message |