Transferring income-generating assets like rental properties or investments to your spouse can be an effective tax planning strategy. Doing so allows you to utilize your spouse’s lower income tax bracket and unused personal allowance. This blog post will explore the main things to consider when transferring assets to your spouse.

Income Tax Savings

The main benefit is income tax savings. If your spouse is in a lower tax bracket, transferring assets means the income will be taxed at a lower rate. It ensures full use of your personal allowances to minimize your collective tax bill. However, anti-avoidance rules prevent assets from being transferred solely to shift income. You need genuine reasons like supporting a non-working spouse. Call our tax advisors for professional advice to ensure compliance.

Capital Gains Tax Implications

When married couples transfer assets, there is normally no Capital Gains Tax to pay. However, unmarried couples would trigger a taxable disposal, incurring CGT charges that could outweigh any income tax savings.

Stamp Duty Considerations

Transferring property between spouses could incur Stamp Duty Land Tax if the value exceeds the nil rate threshold. However, a gift with no consideration or change in mortgage generally doesn’t trigger SDLT.

Other Transfer Costs

Additional transaction fees, legal costs and taxes may apply when transferring assets. These should be calculated in advance to determine if the tax savings justify the costs.

Long Term Planning

Consider if your relative incomes could change in future years. What saves tax this year may only sometimes be the case. Tax planning requires forecasting and adjustments.

Other Tax Planning Opportunities

As well as asset transfers, couples can save tax through personal allowance transfers, marriage allowance, smart savings and ISA investments. A holistic approach works best.

With careful planning and advice, transferring income-producing assets to a spouse can reduce income tax liabilities. However, all aspects like CGT, SDLT, and legal fees need consideration, too. Tax planning should take both short-term and long-term implications into account.