Can I move income from my investment to my spouse? Reply

We have covered this topic before in Are property transfers between spouses taxed?

That blog discussed Capital Gains and SDLT.

We also explained the process in this blog How do you share property ownership income between spouses?

That blog covered Form 17 and Declaration of Beneficial Interest

Today there was a great blog from Croner Taxwise that I wanted to share it

Can I assign the income from my investment property to my spouse so it is taxed at a lower rate?

A. Due to the abundance of legislation that applies to land transactions and gifts, various tax implications are of concern.
Where only an income stream is transferred and the transferor retains an interest in the capital value of the property generating the income, the income is treated for income tax purposes of the income of the transferor under the settlement legislation at ITTOIA 2005 s.624.
To effect a transfer of the income stream and achieve the client’s objective, the transferor must also transfer a proportionate capital interest. To transfer 50% of the income stream effectively, a 50% interest in the capital value of the property also must be transferred.
Capital assets are transferred between spouses at nil gain or loss for capital gains tax purposes. The deemed consideration is so much as would secure a net gain of £0 after accounting for enhancement expenditure, costs to transfer, etc. There are exceptions to this rule where the spouses are not living together so do not assume tax neutrality will apply.
Take additional care where the property in question was previously the main residence of the transferring spouse, as private residence relief may be inadvertently lost. A transferee spouse will only acquire the ownership and occupation history of the transferor where the property is transferred whilst it is the main residence of both spouses (TCGA 1992, s.222(7)). If the property is not their main residence, a gain which would have been 100% relieved in the hands of the transferring spouse will come into charge on a future disposal by the acquiring spouse.
The final tax charge to consider is Stamp Duty Land Tax. There is no exemption from SDLT for transfers between spouses. SDLT is chargeable where the acquiring spouse provides consideration for their interest in the property, including assuming liability for debt.
Although not technically a tax issue, it is of note that a transfer of beneficial ownership of a property does not require a conveyance of legal title. Although a trust arrangement does not need to be written to be effective, a written declaration which is signed and dated can prevent disputes with HMRC over the validity and commencement of the transfer, particularly where income continues to be deposited into a joint bank account.

 

steve@bicknells.net

 

Are your spouses wages tax deductible? Reply

Any salary paid will be subject to Income Tax and National Insurance as well as having to comply with National Minimum Wage and Auto Enrolment.

But you can only use the cost as a business tax deduction if:

  1. Its ‘wholly and exclusively’ for the benefit of the business
  2. The payment must reflect the actual work done and be realistic
  3. The payment must be shown in the accounts
  4. The wages must actually be paid
  5. If you provide for wages they must be paid within 9 months of the end of the accounting period

Mark McLaughlin explains more in this video and tells about a recent case involving a Heating Engineer and his wife. Mark is a brilliant tax writer and I have already order his next book ‘Tax Planning 2017/18’

The rules don’t only cover spouses, they also cover other family members.

 

 

 

There are many other pitfalls relating to other ways to share income such as dividends.

The s660 rules (or settlements legislation) have been around since the 1930s.

The rules stop you passing income to someone else in the family, or giving income or assets to someone else in an effort to reduce your overall tax bill. This is called a “settlement”, and the aim of the legislation is to stop people settling their income on another person who pays tax at a lower rate. (Contractor UK)

steve@bicknells.net

You could employ your spouse to help you do your job Reply

Accounting Standards

Many micro business owners employ their spouse and as long as they perform a role in the business that’s fine and it can be very tax efficient.

But there are circumstances in larger businesses with several owners/directors where it isn’t practical to directly employ your spouse.

However, it could be possible to claim an expense for using your spouse as an assistant, take a look at EIM32415

A deduction can be given in the following circumstances:

  • where the employee is paid solely by results so that, in taking on assistance, the employee can maximise his or her earnings from the employment.
  • where it is actually part of the duties of the employment to engage and remunerate assistants to do some of the work.

So it may be possible to amend your employment contract to identify parts of your job that could be done by someone else and you could add a clause which says that you must ensure the work specified is done and that its your duty to employ an assistant to do it.

The duties could be anything – Admin, Secretarial, Market Research, Telesales…..

Depending on how much you pay your assistant you may need to account for PAYE and NI.

steve@bicknells.net