Valentines Day…a time for couples to show each other how much they care. And if it can be done in a tax-efficient manner, then so much the better! Here are ten top 'tax tips for a twosome'.
A romantic dinner for two
Remember that this is supposed to be pleasure, not business, so don't try to claim the cost of your dinner or hotel stay as a business expense!
On the other hand, staff entertaining can be claimed, so if your loved one is your only employee, why not have a Valentine's Day party? Bear in mind the £150 per head limit for benefit-in-kind purposes, to avoid any unexpected tax bills. This exemption only applies to annual events – but you might want to keep that to yourself, so as not to spoil next year's surprise..!
Tax relief for your Valentines Day gift?
Looking for that special gift idea? Not excited by flowers or chocolates? Spoil your loved one with a gift of something (other than food, drink, tobacco or a gift voucher) bearing a conspicuous advertisement for your business.
A tax deduction may be claimed, but don't get too carried away - the cost of the gift must be no more than £50.
What's mine is yours
Consider transferring assets to your spouse (or civil partner). Gifts between spouses living together are normally made on a 'no gain, no loss' basis for capital gains tax purposes, and are completely exempt from inheritance tax between United Kingdom domiciled spouses. Such gifts can assist in utilising unused capital gains tax losses and annual exemptions, and to allow for lifetime planning for inheritance tax purposes, such as using the nil rate bands of both spouses every seven years.
Outright gifts of income producing assets can also take advantage of income tax allowances and rates. However, don't get caught by the 'settlements' anti-avoidance rules.
Be generous…but don't get carried away!
Before you get too misty-eyed and make any inter-spouse transfers of business assets, aside from the settlements anti-avoidance rules mentioned above consider the implications for capital gains tax entrepreneurs' relief purposes. Would your gift be a qualifying business asset in the hands of your loved one?
Planning a rosy future together
Consider giving a romantic stakeholder pension to your partner. Even if your beloved has no earnings it may be possible to contribute up to £3,600 per annum into a stakeholder pension. And don't forget a stakeholder pension for the kids!
Keep it in the family
Why not employ your loved one?
Make sure the salary is a commercially justifiable reward for the work, is recorded in the books and records, and is physically paid.
Beware the national minimum wage rules (unless your spouse works in the family business and shares the matrimonial home, or is a director of the family company and does not have an employment contract), especially if you don't end up walking hand in hand into the sunset!
Wedding bells
Getting married? Does your beloved have wealthy parents?
What about dropping a subtle hint about the £5,000 inheritance tax exemption for gifts in consideration of marriage (or registration of a civil partnership) by each parent?
Diamonds are forever
Are you still waiting to receive that diamond ring? Remember that there is no capital gains tax charge on the disposal of certain 'wasting' chattels, i.e. assets with a predictable useful life of 50 years or less. As 'a diamond is forever' trying to classify it as a wasting asset is likely to be problematic. However, if its value is less than £6,000 the gift will in any event be subject to exemption from capital gains tax.
Share and share alike
Wishing to make an extravagant gesture? Why not gift your spouse between £500 and £500,000? They could use this money to invest in the shares of an enterprise investment scheme company, and potentially obtain income tax relief on 20% of the investment. Husband and wife (or civil partners) may each subscribe up to £500,000 and claim the relief. Alternatively, a transfer of enterprise investment scheme shares to your spouse partner should not result in any withdrawal of relief, if you are both living together.
An investment in a venture capital trust of up to £200,000 each could also be considered. The rate of income tax relief available on such investments is 30%.
Are you lonesome tonight?
Have you been working abroad for 60 days or more? Missing your loved one?
Why not arrange for your spouse (or civil partner) to visit you? A deduction from taxable earnings may be claimed for certain travelling expenses of the spouse, which are paid or reimbursed by your employer. This includes up to two outward and two return journeys in the same tax year.
Happy Valentines Day!
One final thought. If the big day does not go according to plan and your Valentine's Day tax planning activities are not well received, don't worry. The inter-spouse (or civil partner) exemption for capital gains tax purposes applies throughout the tax year of separation!
Mark McLaughlin CTA (Fellow) ATT TEP
This article has been adapted and updated from an article by the author, which was first published in Tolley's Practical Tax in 2001.
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