Every individual has tax allowances and exemptions and part of the Financial Planning process is to ensure that those allowances and exemptions are utilised to maximise efficiency.
Whilst there are various allowances and exemptions currently available (for example; personal allowance for Income Tax, a Capital Gains Tax exemption, ISA allowance etc), from April 2015, the Government will be introducing the Transferable Income Tax Allowance (TTA).
The Transferable Tax Allowance will enable spouses/civil partners to transfer a fixed amount of their personal allowance to their spouse/civil partner. This option will be available to couples where neither partner is a higher rate taxpayer.
Essentially, married couples or civil partners who earn less than the annual personal income tax allowance (approx. £10,000 2014/15) will be allowed to transfer £1,000 of their allowance to their spouse/civil partner under the TTA rules. This will mean that the higher earning spouse/civil partner will be able to earn £1,000 more before they start paying income tax, resulting in a tax saving of £200 (i.e £1,000 x 20%).
The policy benefits married couples and civil partners where one is a basic rate taxpayer (earns below £42,285 in 2015/2016) and the other has an unused personal allowance.
The TTA will apply from tax year 2015/16 and must be claimed online. The relief is likely to be delivered as a rebate at the end of the tax year. Couples will be entitled to the full benefit in their first year of marriage.
To discuss how to structure your assets to maximise use of your allowances and exemptions contact a Chartered Financial Planner at Springfield Financial Services.