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TaxationWeb by Mark McLaughlin CTA (Fellow) ATT TEP

It’s Valentines Day…a time for couples to show each other how much they care. And if it can be done in a tax-efficient manner, then so much the better! Here are ten top ‘tax tips for a twosome’.It’s Valentines Day…a time for couples to show each other how much they care. And if it can be done in a tax-efficient manner, then so much the better! Here are ten top ‘tax tips for a twosome’.

1. A romantic dinner for two

Remember that this is supposed to be pleasure, not business, so don’t try to claim the cost of your dinner or hotel stay as a business expense!

On the other hand, staff entertaining can be claimed, so if your loved one is your only employee, why not have a Valentine’s Day party? Bear in mind the £150 per head limit for benefit-in-kind purposes, to avoid any unexpected tax bills. (ITEPA 2003, s 264)

2. Tax relief for your Valentines Day gift?

Looking for that special gift idea? Not excited by flowers or chocolates? Spoil your loved one with a gift of something (other than food, drink, tobacco or a gift voucher) bearing a conspicuous advertisement for your business.

A tax deduction may be claimed, but don’t get too carried away - the cost of the gift must be no more than £50. (TA 1988, s 577(8))

3. What’s mine is yours

Consider transferring assets to your spouse. Gifts between spouses living together are normally made on a ‘no gain, no loss’ basis for capital gains tax purposes, and are completely exempt from inheritance tax between United Kingdom domiciled spouses. Such gifts can assist in utilising unused capital gains tax losses and annual exemptions, and in equalising estates for inheritance tax purposes to use the nil rate bands of both spouses.

Outright gifts of income producing assets can also take advantage of income tax allowances and rates. However, don’t get caught by the ‘settlements’ anti-avoidance rules, particularly involving gifts of business interests. (TCGA 1992, s 58(1), IHTA 1984, s 18(1), TA 1988, s 660A)

4. Be generous…but don’t get carried away!

Before you get too misty-eyed and make any inter-spouse transfers of business assets, aside from the settlements anti-avoidance rules mentioned above consider the implications for capital gains tax taper relief purposes.

Would your gift be a business asset in the hands of your loved one, and would the holding periods of both spouses be taken into account on a subsequent disposal? (TCGA 1992, Sch A1 paras 4-5, 15)

5. Planning a rosy future together

Consider giving a romantic stakeholder pension to your partner. Even if your beloved has no earnings (or is earning less than £30,000 a year) it may be possible to contribute up to £3,600 per annum into a stakeholder pension. And don’t forget a stakeholder pension for the kids!

6. Keep it in the family

Why not employ your loved one?

Make sure the salary is a commercially justifiable reward for the work, is recorded in the books and records, and is physically paid.

Beware the national minimum wage rules (unless your spouse works in the family business and shares the matrimonial home, or is a director of the family company and does not have an employment contract), especially if you don’t end up walking hand in hand into the sunset!

7. Wedding bells

Getting married? Does your beloved have wealthy parents?

What about dropping a subtle hint about the £5,000 inheritance tax exemption for gifts in consideration of marriage by each parent? (IHTA 1984, s 22)

8. Diamonds are forever

Are you still waiting to receive that diamond ring? Remember that there is no capital gains tax charge on the disposal of certain ‘wasting’ chattels, i.e. assets with a predictable useful life of 50 years or less. As ‘a diamond is forever’ trying to classify it as a wasting asset is likely to be problematic. However, if its value is less than £6,000 the gift will in any event be subject to exemption from capital gains tax. (TCGA 1992, ss 44, 262(1))

9. Share and share alike

Wishing to make an extravagant gesture? Why not gift your spouse between £500 and £200,000? They could use this money to invest in the shares of an enterprise investment scheme company, and potentially obtain income tax relief on 20% of the investment. Husband and wife may each subscribe up to £200,000 and claim the relief. Alternatively, a transfer of enterprise investment scheme shares to your spouse should not result in any withdrawal of relief, if you are both living together. (TA 1988, ss 290, 304(1))

An investment in a venture capital trust of up to £200,000 could also be considered. The rate of income tax relief is increased from 20% to 40% for a limited period only, i.e. for shares issued in the tax years 2004/05 and 2005/06. (TA 1988, Sch 15B Para 1(5); FA 2004, s 94(1))

10. Are you lonesome tonight?

Have you been working abroad for 60 days or more? Missing your loved one?

Why not arrange for your spouse to visit you? A deduction from earnings may be claimed for certain travelling expenses of your spouse, which are paid or reimbursed by your employer. This includes up to two outward and two return journeys in the same tax year. (ITEPA 2003, s 371)

Happy Valentines Day!

One final thought. If the big day does not go according to plan and your Valentine’s Day tax planning activities are not well received, don’t worry. The inter-spouse exemption for capital gains tax purposes applies throughout the tax year of separation!

February 2005

Mark McLaughlin CTA (Fellow) ATT TEP

This article has been adapted and updated from an article by the author, which was first published in Tolley’s Practical Tax in 2001.