6 practical ways couples can be more tax-efficient and boost savings

Although the Bank of England (BoE) held the base rate at 5.25% in November 2023, interest rates have risen considerably since 2021. While this gives a boost to your returns, you could end up paying more tax on your savings interest than before.

According to a recent report by This is Money, millions of people in the UK face paying tax on their savings for the first time as higher interest rates send them over their Personal Savings Allowance (PSA).

Planning as a couple rather than individually could help you save in a more tax-efficient way. Read on to learn more about the various allowances you can make use of and how they could potentially boost your savings over time.

1. Combine your savings if you have unequal incomes

If you or your partner earns significantly more than the other, you could reduce tax on your savings by combining funds and making the most of three useful allowances.

The starter rate for savings

The starter rate for savings gives lower earners an opportunity to benefit from a tax exemption on some or all the interest on their savings.

If one of you earns above the standard Personal Allowance (£12,570 for 2023/24) and below £17,570, you could be eligible for the starter rate, which provides tax relief for up to £5,000 of interest (2023/24).

Personal Allowance

The standard Personal Allowance of £12,570, is the amount of income you can earn before you start paying Income Tax.

Where one partner earns less than the Personal Allowance, they can claim the difference between this and their income as part of their Personal Savings Allowance.

Personal Savings Allowance

The Personal Savings Allowance entitles all basic-rate taxpayers to earn up to £1,000 (2023/24) of interest without paying Income Tax on it.

Higher-rate taxpayers have an allowance of £500, and additional-rate taxpayers do not have a Personal Savings Allowance.

By taking advantage of these three allowances, you could reduce the amount of tax you pay as a couple. For example, if the higher-earning partner transfers savings to the lower earner, this could potentially mean that the higher earner pays less tax, and the lower earner pays none.

2. Claim Marriage Allowance

If you’re married or in a civil partnership, you could transfer up to £1,260 of your Personal Allowance to your spouse, reducing their tax bill by up to £252 (2023/24).

To benefit from the Marriage Allowance, either you or your partner will need to be a basic-rate taxpayer, while the other must earn less than the Personal Allowance of £12,570.

The government website has an online Marriage Allowance calculator that could help you work out how much tax you might save as a couple.

3. Share your investments

If you hold shares or investment funds, these could provide an income in the form of dividends.

You’re entitled to receive up to £1,000 in dividend income without paying Dividend Tax in the tax year 2023/24 and up to £500 from the tax year 2024/25. This allowance is available regardless of your income level and applies in addition to your Personal Allowance.

So, where one of you has a considerable investment portfolio and the other does not, you could make the most of both of your Dividend Allowances by transferring some dividend-paying investments to the partner who does not currently hold any significant investments.

Similarly, the Dividend Tax rate payable depends on your Income Tax rate. So, transferring dividend-paying investments to a partner in a lower Income Tax bracket could reduce the amount of Dividend Tax payable.

4. Transfer assets to your spouse

If you sell or “dispose of” an asset that has increased in value, there may be Capital Gains Tax (CGT) to pay on any profit or “chargeable gains” that you make.

For example, if you buy shares outside an ISA for £20,000 and sell them for £30,000, CGT may be due on the £10,000 gain.

However, you are entitled to a CGT Annual Exempt Amount each tax year. This is the maximum profit you could make before having to pay CGT. For the 2023/24 tax year, the Annual Exempt Amount is £6,000 per individual and it will be reduced to £3,000 in 2024/25.

Also, you will not usually have to pay CGT on gifts to your spouse or civil partner although if they subsequently sell the asset, there may be tax to pay on any gains.

If you are living with a spouse or civil partner, you are each entitled to the Annual Exempt Amount. So, by transferring assets to your spouse, you could effectively double the annual exemptions you have as a couple to set against any gains made. You could jointly make up to £12,000 in gains in 2023/24 before paying any CGT.

5. Pay into your partner’s pension

You can receive generous tax relief on pension contributions up to 100% of your salary or £60,000, whichever is lower, in 2023/24.

If you have the means to pay more into your pension than the £60,000 Annual Allowance, contributing to your spouse’s pension could be a tax-efficient way of boosting your joint savings.

Your spouse or partner benefits from tax relief at their marginal rate of Income Tax, even for contributions made by you or another third party.

In addition, making larger pension contributions to the individual paying higher- or additional-rate Income Tax could be beneficial, as you’ll enjoy 40% or 45% relief on these contributions.

6. Consider estate planning as a couple

If the value of your estate exceeds the £325,000 nil-rate band (2023/24) your family may have to pay Inheritance Tax (IHT) on any assets you pass on when you die.

However, married couples or civil partners can usually leave their estate to each other on death without any IHT, meaning the surviving partner could pass on up to £650,000 before their beneficiaries have to pay IHT.

Furthermore, couples can extend their nil-rate band by up to £175,000 each by taking advantage of the residence nil-rate band (RNRB), which is designed to reduce the tax bill for individuals passing on their main residence to direct descendants.

This means that as a couple you could pass on up to £1 million in assets without your beneficiaries paying any IHT.

You may like to keep your finances separate, but joint financial planning could help you reduce your tax bill and boost savings.

Get in touch

If you’d like to learn more about how a financial planner can help you maximise savings as a couple, we’d love to hear from you.

Please email us at mail@delaunaywealth.com or call 0345 505 3500.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.