The benefits of using your partner’s ISA allowance
If you’re married or in a civil partnership you shouldn’t just think about your own ISA allowance, but should consider your spouse’s too. Each adult has an ISA allowance of £20,000 each year, and there can be tax advantages to viewing yours and your spouse’s allowances together.
HERE ARE A FEW THINGS TO CONSIDER
1 – Use Bed and Spouse to save tax
Strange name, but a useful tax-planning strategy. ‘Bed and Spouse’ effectively means selling investments that are outside your ISA and rebuying them in your spouse’s name.
It means you can use your capital gains tax allowance in a year, which is currently £12,000, and then the asset will be in your spouse’s name for future tax liabilities.
You can also do ‘Bed and Spouse and ISA’ which means that your spouse then puts the investments into an ISA, where they won’t be charged income or capital gains tax in the future.
If you’ve got some investments that have gone up in value a lot, and so have a big capital gain, you can sell enough to realise £12,000 of gains and then rebuy them in your spouse’s name. You won’t be charged tax on the gain, as it’s within your annual allowance, and you protect the investment from future tax.
2 – Can I run my spouse's investments?
You may have a joint bank account with your partner, but ISA rules mean that you can’t open a joint stocks and shares ISA account – each account must be in each spouse’s name.
However, many investment platforms will allow you to appoint a family member on your account and let them view the details of your investments or allow them to deal on your account.
You’ll need to appoint them as ‘account lead’, which they can do for numerous accounts within your family group, with up to five customers linked.
By allowing them to deal you’re giving this person the ability to buy and sell investments on your account, so make sure that you want them to have that level of control.
You can withdraw this permission at any time, for example if you get divorced or you want to manage the money by yourself.
3 – Use your spouse's unused tax-free allowance
Married couples are eligible for a tax break so long as one of them earns less than the personal allowance, which is currently £12,500, and the other half earns the basic-rate of tax, so less than £50,000.
The marriage allowance means that the lower earning partner can transfer £1,250 of their unused personal allowance to their spouse – with a maximum saving of £250 if they transfer the full allowance. If you haven’t claimed this tax break and have been eligible in previous years you can back-date your claim, up to 5 April 2015.
4 – How the ISA works if your spouse dies
Money held in an ISA account remains tax free when someone dies, so long as they pass it to their spouse or partner, thanks to rules introduced in 2015. This means it’s protected from inheritance tax and also remains sheltered from income and capital gains tax.
However, the way the tax benefit is passed on is a little tricky. Instead of your deceased spouse or partner’s account being transferred into your name, you’ll get what’s called an ‘additional permitted subscription’ equal to the amount in their ISA account. This gives you a one-off ISA allowance on top of your annual ISA limit.
For example, if your spouse died this year with £70,000 in their ISA, you will be given an additional permitted subscription of £70,000 on top of your £20,000 ISA limit.
The rules were made even better last April, meaning that any growth on the deceased person’s ISA is also protected from tax.
Previously the additional permitted subscription was based on the ISA account value on the holder’s death, meaning any growth in the ISA account during the probate process was not tax free. The value is now based on the higher of the value at death or when the money is passed on.