Tax might not be the most romantic topic to discuss with your partner, but giving your finances some love and attention could make a significant difference to your tax bill.
Here are five ways you and your partner can keep more of your hard-earned money in your pockets.
1. Make the most of your ISA allowances
Individual savings accounts (ISAs) are a great way to invest for the future because you don’t pay income tax on the dividends1 or interest you receive, and you don’t pay capital gains tax (CGT) on any profits you make when selling investments.
The ISA allowance is currently £20,000, so if you both have an ISA, you can shelter up to £40,000 from these taxes each year. Remember, the ISA allowance is a ‘use it or lose it’ allowance, meaning you can’t carry forward any unused portion to the next tax year.
2. Use your CGT allowances and consider transferring assets
If you hold investments outside an ISA, consider using both partners’ CGT allowances. In the 2024-25 tax year, you can each realise up to £3,000 of profits on your investments without incurring tax, which means couples have the potential to realise tax-free profits of up to £6,000.
If you’re married or in a civil partnership, you can transfer investments to one another without paying tax. This can be useful if one partner is a basic-rate taxpayer and the other is a higher-rate taxpayer. CGT rates vary depending on which tax band you fall into, as do income tax and dividend tax rates. By transferring assets to the basic-rate taxpayer, you could benefit from a lower rate of tax – or potentially no tax at all – on income and capital gains.
3. Don’t neglect your pensions
Paying into a pension is a tax-efficient way of saving for retirement because you get tax relief on personal pension contributions. If you pay £80 into your pension, the government tops it up to £100. Higher-rate and additional-rate taxpayers can claim another £20 and £25, respectively, via their self-assessment tax return.
If you both contribute to pensions, it can help you pay less tax in retirement. Relying on only one partner’s pension increases the risk of paying higher-rate tax on the income. By drawing income from both pensions, it’s easier to stay within the basic-rate tax bracket. For example, if you draw £60,000 from one pension, you’ll pay higher-rate tax. But if you draw £30,000 from two pensions, you’ll pay basic-rate tax.
Additionally, drawing income from two pensions lets you maximise each person’s ‘personal allowance’, which is the amount of income you can earn each year without paying tax. For the 2024-25 tax year, this allowance is £12,570.
4. Check if you qualify for the marriage allowance
The marriage allowance lets some married couples and civil partners reduce their tax bill by transferring some of their personal allowance to their partner.
To qualify, the lower earner must have an income below £12,570. Their partner must pay income tax at the basic rate, which usually means income between £12,571 and £50,270 (or between £12,571 and £43,662 in Scotland).
If you qualify, the lower earner can transfer £1,260 of their personal allowance, which reduces their partner’s tax bill by up to £252 (tax year 2024-25). You can backdate your claim for up to four years2.
5. Plan for a tax-efficient wealth transfer
Inheritance tax (IHT) can be a significant concern for many couples, but there are ways to pass on your wealth tax-efficiently.
Each individual has an IHT allowance, known as the nil-rate band, which is currently £325,000. If you’re married or in a civil partnership, any unused allowance can be transferred to your partner when you die3, effectively doubling the allowance to £650,000. Additionally, the residence nil-rate band, which is £175,000 per person, can also be transferred, bringing the total to £1 million for a couple.
Some of the ways to help reduce your estate’s IHT include making lifetime gifts, placing assets in trust and taking out life insurance. For more information, read our earlier article on how to manage inheritance tax.
With careful planning, you can ensure more of your wealth goes towards supporting you and your loved ones, and less to the taxman.
1 Dividends are the payments some companies make to their shareholders out of their profits.
2 For more information on the marriage allowance see HMRC website.
3 This transfer doesn’t happen automatically. It needs to be claimed by the estate’s executor or administrator within two years from the end of the month in which the second death occurs. For more information see HMRC Form IHT402.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
The eligibility to invest in either ISA or Junior ISA depends on individual circumstances and all tax rules may change in future.
Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55, rising to the age of 57 in 2028.
If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.
Any tax reliefs referred to are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.
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