- Almost three quarters of people trust their spouse enough to share their assets in order to take advantage of tax rules (74%).
- Men are more trusting than women (79% compared to 69%).
- Those aged 35-54 are least likely to trust their spouse enough to share assets (66%), while those age 55 and over are most likely (82%).
- 73% of those under 34 and in a relationship say they would trust their spouse.
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Do you trust your spouse enough to give them savings and investments to hold for tax purposes? Almost three quarters of people would, but women, those in middle age and basic rate taxpayers are less convinced that they can trust their partner. If they’re right, sharing assets can come with a real sting in the tail.
Who trusts the least?
The more assets someone has, the more likely they are to trust their spouse with some of them – with 79% of savers and 84% of investors saying they would be happy to share assets to cut a tax bill. Higher earners are also more prepared to hand over their cash. Additional rate taxpayers are most likely to trust their spouse enough to share assets (95%), higher rate taxpayers were next (82%) and basic rate taxpayers next (74%). This will be influenced by the fact they have more to gain from the move, and some will already have shared assets and felt the benefit. It also owes something to the fact that if wealthier people lost some assets, it might be less devastating to their finances.
The fact that men tend to be on higher average incomes and hold more assets on average could help explain why men are more likely to trust their spouse with their money than women.
Older people are most likely to trust their partner. This may be because they tend to have been together for longer, and therefore have built up more trust. However, this isn’t the only factor, given that younger people are more likely to say they would trust their partner with their assets than those aged 35-54. This could be because in some cases for younger people this is more of a theoretical possibility than a likely probability. It might also be because the squeezed middle face some testing years – both financially and emotionally. On average, women marry at 31 and men at 33, and the average divorce comes 13 years after marriage – falling squarely within this age group. Trouble in the relationship might test one another’s trust.
Why your spouse is so valuable
The tax rules are designed to make your spouse one of your most valuable tax planning tools, because you can share assets between to cut your tax bill. In some cases, you can hold a balance between you that means you both stay within your individual allowances and pay no tax. In other cases, the extra can be held by the lower taxpayer, so at least some of the gain, interest or dividends are taxed at a lower rate.
You can technically share assets with anyone, but the key is that that there is no tax of any kind to pay when you hand assets to a spouse. If you were to give investments to someone other than your spouse, the gain those assets had made since you bought them would be calculated, and if it was more than the CGT allowance of £3,000, there could be tax to pay*. If you were to give cash from your savings to anyone, it wouldn’t trigger a tax bill, but if you gave it to someone other than your spouse and it was over the annual inheritance tax gifting allowance (£3,000 a year), it would still be considered as part of your estate for the next seven years.
How you can take advantage
You both have your own tax-free allowances – including your income tax personal allowance, personal savings allowance, dividend allowance and capital gains tax allowance. You can manage your assets between you so that you both take advantage of as much of your allowances as possible.
You can also take advantage of both of your ISA allowances. You and your spouse can pay £20,000 each into an ISA in the current tax year, and protect it from tax. If one of you has the lion’s share of any income or assets, you can pass cash to your spouse, so you can still both take advantage of your ISA allowances this year.
The same goes for pensions. Most people have an annual limit of either £60,000 or their earnings – whichever is lower. If you’re both working and earning, you can take full advantage of your allowances. So you can pass money to your spouse to enable them to fully top up their pension. If your spouse doesn’t earn enough to pay tax, you can still pay in £2,880 to their pension, and it will be topped up to £3,600 with tax relief.
If you have investments outside an ISA or a SIPP, you have used your ISA allowance but your spouse hasn’t used theirs, you can give assets to your spouse without triggering a tax bill, so you can both realise gains up to the allowance and then shelter up to £20,000 each in an ISA. This is sometimes known as Bed & Spouse & ISA.
The risks
You have given this money away, so it will be in the control of your spouse. They are free to make any decisions they want with it, moving investments or savings, or spending as much as they want. If you have a strong relationship, this may not be a concern, but if your partner has any issues around money, or any problem debts, they could make poor decisions with this money.
Any money you hand over is also theirs to leave in any way they wish in a will. You may have mirror wills, or have drawn up wills together to ensure no matter who passes away first, the beneficiaries are right for both of you. However, there is nothing stopping them from drawing up a will to leave everything to someone you didn’t want to benefit on their death. If you have a strong relationship, this is the kind of thing you can discuss and agree, but there are no guarantees you will always be on good terms.
In the event of a divorce, you may be able to come to an agreement about division of assets, or the courts will divide your estate up in a way it believes is fair. However, that doesn’t mean you’ll get this money back on the grounds it was yours in the first place. Any court will prioritise need and start with equality, so you wouldn’t see a significant chunk of these assets again. There’s also the possibility that an estranged spouse will spend as much of the money as possible in order to reduce your settlement.
Legally this isn’t allowed, and you could ask the court to take this out of their share. In reality, however, this will only be considered when there is more than enough money to go around. Even then, this can be incredibly difficult to prove because you need to be able to show not just that they have been reckless in their spending, but also that it was done deliberately to deprive you of money. In the past lawyers have ben able to argue that the spending was just an innocent character flaw.”
*This doesn’t mean the gain resets to zero when you give it away, when your spouse sells up, the gain is calculated from the day you acquired the asset, but they can use their own capital gains tax allowance to cover at least some of this.
