Such transfers of assets between spouses and civil partners do not trigger any capital gains tax implications at the time of the transfer and can ensure that, for example, the investment income nil tax bands and lower tax rates are being utilised as effectively as possible.
Letting income
Care does, however, need to be taken with certain types of investment income before you transfer the ownership between spouses or civil partners. For example, if one has letting income and there is a mortgage on the buy-to-let property, the approval of the mortgage holder would be needed before the transfer can go ahead.
One also needs to assess whether any transfer of ownership triggers a charge to stamp duty land tax, which can depend upon whether there is a mortgage or not.
One also needs to understand whether the property is held as ‘tenants-in-common’ or ‘joint tenants’. Tenants-in-common own the property ‘communally’ – if one were to die, the property goes 100 per cent to the remaining owner. In contrast, joint tenants each own a specific share of the property personally in their own rights and would not be able to directly transfer the income for that share to their partner directly – rather, they would need to change the ownership structure to tenants-in-common first.
Isas
Another option for taxpayers looking to be as tax efficient as possible is to ensure that they use their annual Isa limit of £20,000 before April 5 2022. While one does not get tax relief on contributions to an Isa (although people under 40 can join a Lifetime Isa and get some tax relief), they do benefit from tax-free growth and are also tax-free when the money is taken out of the Isa.
As such, the earnings from the Isas on a going forward basis will not be subject to the increased tax burden that arises for taxpayers from April 6 2022 onwards. It is also worth remembering that each spouse/partner in a relationship has access to the £20,000 annual Isa limit.
Charitable contributions
When should a taxpayer make their charitable contributions, for example via gift aid?
While tax is unlikely to be a primary driver, one should be aware that making a significant charitable contribution does have tax implications. As such, if one is likely to be in a different (higher) marginal tax band in 2021-22, for example, than they are in the present tax year, it may be tax efficient to delay the charitable contribution until April 6 2022.
Summary
While care needs to be taken with any tax planning and tax should not be the only factor driving one’s decisions, the above guide does highlight a number of factors and options that taxpayers can consider as they review their financial affairs and look at the impact of higher and higher effective tax rates over the coming years.
