Tax Year End Planning for Couples: Areas to Review Before 5th April

As the end of the tax year approaches, you may be wondering if there are any other ways you can reduce your household’s tax bill. Many couples focus on topping up their ISAs or making last-minute pension contributions before the 5th April deadline – but actually, it could be more effective to take a step back and look at how your assets, allowances, and pensions work together as a couple.

Married couples and civil partners are taxed independently in the UK, which means your household has two sets of allowances and tax bands available. If you structure your asset ownership correctly, this can significantly reduce your exposure to income tax and Capital Gains Tax rates. But if your assets are structured incorrectly, you could end up paying more tax than necessary.

In this guide, we highlight the key areas you should review as a couple before 5th April, from asset ownership and CGT allowances to pensions and ISAs.

1) Restructure Your Income-Producing Assets

Start by reviewing any assets that generate income for you as a couple, including your savings, investments, and rental properties, and ask yourself if they are held by the right person. If one of you pays higher-rate tax, shifting your income-producing assets to the lower earner can significantly reduce your household’s tax bill.

It’s important to remember that you each have your own personal allowance (£12,570), personal savings allowance (£1000 for basic-rate taxpayers and £500 for higher-rate), and dividend allowance (£500). Transferring assets between spouses is usually free from immediate Capital Gains Tax under the “no gain, no loss” rules, which makes restructuring your assets relatively straightforward from a tax perspective.

Asset ownership also affects your longer-term estate planning. Although your assets can usually pass between spouses free of inheritance tax, making sure you both hold assets in your own names will ensure you each use your available tax-free allowances. These rules are very different for unmarried couples, as these spouse exemptions do not apply.

2) Use Both Capital Gains Tax Allowances Before You Sell

If you’re planning to sell your investments or property outside of your main residence, then you need to plan around the Capital Gains Tax rates. 

The individual Capital Gains Tax annual exemption is currently £3,000, meaning that you have a combined £6,000 exemption as a married couple – but only if your assets are structured correctly. If you hold your investment portfolio in one name and then sell it, you can only benefit from the individual exemption. But if you transfer part of the holding into joint names before you sell (again typically on a no gain, no loss basis), then you can use both allowances.  

It’s important to remember that the CGT rates differ depending on your income band and the type of asset. For example, if you’re a higher-rate taxpayer, you’ll pay 24% on your gains from residential property, whereas basic-rate taxpayers will only pay 18%. Using two exemptions and potentially two tax bands can significantly reduce your tax liability. 

3) Maximise Your Pension Contributions as a Couple

One of the simplest ways to reduce your tax bill before 5th April is to make or increase your pension contributions before the deadline. 

When you make a personal contribution to a pension, you usually benefit from tax relief on your pension contributions. For example, contributing £10,000 to your pension will only cost you £8,000 if you’re a basic-rate taxpayer. If you pay higher-rate tax, you may be able to claim additional relief through your tax return, helping to reduce the true cost even further. Although tax relief is normally limited to 100% of relevant earnings, remember that even if one of you has low or no earnings, you can still contribute up to £3,600 gross (£2,880 net) into your pension each year and receive basic-rate tax relief.

Making additional pension contributions may help to reduce your income tax bill and potentially avoid the 60% tax trap, which is where your income between £100,000 and £125,140 is taxed at 60% because your personal allowance is gradually taken away.

The rules on pension contributions and tax relief are very complex, so be sure to seek independent advice before doing so.

4) Make Full Use of Your Combined ISA Allowances

We highly recommend making full use of your ISA allowances before the tax year end. Your allowances cannot be carried forward, so if you fail to use them by 5th April, they will be lost forever. Each of you can invest £20,000 per tax year into an ISA, giving you a combined total of £40,000 that can be entirely sheltered from income tax and Capital Gains Tax. 

Your ISA assets are free from future tax and form the backbone of a tax-efficient investment strategy in retirement. You could consider a “Bed and ISA” strategy, which involves selling your taxable investments and repurchasing them within an ISA. This will help you gradually move your wealth into a more protected environment.

Helping You Bring Your Tax Planning Together as a Couple

At Piercefield Oliver, we’ve helped hundreds of couples across Cheltenham and the Cotswolds to structure their finances more efficiently and avoid paying unnecessary taxes. Rather than viewing your ISAs, pensions, and investments in isolation, we help you look at your overall financial position as a couple. This means reviewing:

• Whether your assets are held in the most tax-efficient name
• How you are using both your ISAs and Capital Gains Tax allowances
• Whether your pension contributions are optimised for each of you
• How your asset ownership decisions affect your longer-term estate planning

Looking for a joined-up tax year end review before 5th April? Book your free consultation with one of our expert financial advisors today.