Can you advise me on how to have a lighter tax bill?

This question is asked by often by new clients in our first meetings and one of my fact-finding questions is to ask if they married or have a partner?

Paying tax is part of our legal duty but paying the lighter tax due to proper tax planning could be a Christmas gift received early.

I know this because of the smile on the faces of a lot of our clients that have received tax refunds.

The issue with tax reliefs is that they are usually time-sensitive and could be lost if not claimed within the required time frame.

In this blog, we would like to highlight some of the ways that you can receive a lighter bill if you are a taxpayer that lives in the UK.

Transfer your capital asset to your husband/wife/partner.

When you transfer your capital asset to your spouse, it’s a capital gains transfer.

This transfer is made to a related party and therefore the market rate of the property will be used in accessing the capital gains due.

The tax on the disposal is usually based on the gain on the property disposed or transferred.

Do you pay tax on the capital asset transferred to your spouse?

This transfer however is not a chargeable transfer under capital gains tax.

By moving some of these capital assets tax-free to your spouse, you could save tax in several ways such as:

How to receive a lighter tax bill on rental income when you transfer an asset to your spouse?

By transferring the capital asset to your partner, they can utilize their annual exemption to save tax and therfore recieving a lighter tax bill.

If either of you pays tax at 40%, it could be tax-efficient for the taxpayer paying tax at the lower band to dispose of the property.

Kindly note that the date of transfer will determine the tax year that the disposal was made and when tax relief could be claimed.

Note that you will have to make a declaration of this disposal within 30 days that the transaction occurred.

This declaration so HMRC needs to be made to prevent paying the late penalty fine.

How to receive a lighter tax bill on rental income

In the case of the transfer of a rental property, you could also reduce the income tax paid by owning the property together with your spouse.

By doing this you reduce the tax paid on rental income earned by sharing the income into two and paying tax individually.

The benefit derived from this will even be more if one of the partners pays tax at 40%, it’s more tax-efficient to move to the property to party paying lower tax.

How to receive a lighter tax bill by claiming the marriage tax  allowance

The marriage tax allowance is one of the methods of receiving a lighter tax bill for married couples or partners.

If a married couple qualifies, they may be entitled to £1250 tax relief from the revenue.

It’s really easy to apply and take advantage of this tax relief.

Conditions for qualifying for lighter tax from claiming tax relief.

• To be able to claim this relief you would need to be married or in a civil partnership, partners that just live together unofficially do not qualify,
• Either of the partners must have some of their personal allowance available.

For example in the tax year 2022/23, the personal allowance for the UK taxpayer is £12570, One of the partners must be earning less than the amount before they can transfer some of their allowances.

• The partners transferring the personal allowance must be a basic taxpayer that pays tax at a 20% rate to qualify. Therefore, this partner’s total income must not be more than £50,270 (£43,662 in Scotland)

The good news is that you can make backdated claims for the last 4 tax years.

 How to apply for marriage tax  allowance tax relief

To make this claim, the partner with the lower income will fill out an application on the HMRC website.

You will need all your personal details such as your National insurance number and two forms of identification

This will be needed in setting up your personal tax account with the HMRC.

When this application is successfully made, a refund will be paid to you.

The amount you receive will be determined by the number of years you made a claim.

The claim could vary from £252 or £1242 in the tax year 2022/23.

Also, the tax code of the partners receiving the personal allowance will be adjusted so that they recieve a lighter tax bill in the future.

However, please note if there has been a change in your circumstances after receiving this tax relief, you are required to inform HMRC of the changes.

Conclusion on receiving a lighter tax bill from the revenue.

Thanks for reading this blog post on houw to recieve a lighter tax bill from the HMRC.

If you would like us to support you with some of the tax issues raised here or other accounting support, kindly contact us