Is it possible to use my wife’s unused tax allowance? While I pay tax my wife’s income is only £2,500 per year.
Everyone has an annual capital gains tax allowance as well as an income tax allowance, whether they use it or not. That includes non-working spouses and children. However, if you don’t use your allowances they can’t be carried forward and are lost.
Similarly they can’t be ‘transferred’ or ‘used’ by a spouse. The secret is for a married couple to arrange their assets and income so that both husband and wife use their allowances.
To fully utilise both yours and your wife’s annual allowances will require assets to be held in your respective names so that any income or capital gains are offset against your respective allowances. But while it may be easy to achieve this with some assets, i.e. moving bank accounts into your wife’s name, others may prove more difficult. Plus some income streams, such as employment earnings can’t be paid to anyone else other than you, although there are plenty of ways of mitigating income tax for the self-employed, which can be found elsewhere on the site by using the search function in the top right.
One thing to bear in mind is that transferring ownership of assets can have CGT and IHT implications, particularly if transferred to someone other than a spouse. But the good news is that inter-spouse transfers are free from any form of taxation.
Obviously transferring ownership of assets or taking out investments in another’s name means that you relinquish control of said assets. So make sure you don’t upset your wife once everything is in her name.
Tax mitigation is basic financial planning and is relatively easy to achieve – so don’t be overwhelmed. If in doubt seek independent financial advice.
I hope that helps