This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.


Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet
Tax Insider Tip: Equalising Marginal Rates Of Tax
26/09/2016, by Tax Insider, Tax Tips - General Tax
Rating: 0/5 from 0 people

For 2015/16 there are three rates of income tax – the basic rate of 20%, the higher rate of 40% and the additional rate of 45%.

By transferring income to a lower earning spouse or civil partner it is possible to save tax at the higher rates, thereby reducing the combined tax bill.

It should be noted that to transfer income to a spouse or civil partner, the underlying asset, such as shares, must be transferred, rather than the income (for example, the dividend) itself.

Stuart is an additional rate taxpayer with income of £170,000. His wife has income of £50,000 (after deducting personal allowances).

By transferring income of £20,000 to his wife, the marginal rate of tax is reduced from 45% to 40%, saving tax of £1,000 (5% of £20,000).

A word of caution: where it is not possible to reduce income below £100,000 for both partners to preserve personal allowances, care should be taken to avoid the high marginal rates that occur between the income limit and the level at which the personal allowance is fully abated (for 2015/16 between £100,000 and £121,200).

If Stuart’s wife had been a basic rate taxpayer, it is possible to generate greater savings and in this situation it is advisable, if possible, to transfer sufficient income to use the whole of her basic rate band. The basic rate band is set at £31,785 for 2015/16 and the personal allowance is £10,600 making it possible to have income of £42,385 before paying higher rate tax.


About The Author

The above article is taken from 'Tax Insider,' TaxationWeb's own publication specifically for taxpayers and their advisors. 'Tax Insider' is a monthly magazine containing numerous tax tips, articles, questions and answers from leading tax experts, aimed at helping taxpayers to save tax and reduce their liabilities.

To register and download free copies of Tax Insider, and for details of special offers and how to order, visit:

Back to Tax Tips

Please register or log in to add comments.

There are not comments added

ICPA Chairman Tony Margaritelli discusses 3 topics centred around October, including: 1. HMRC Furlough Fraud & Fighting For Your Clients, 2. Think About Yourself, 3. Are You a HMRC Customer.