Love and Money: Tax Planning Opportunities for Couples

Love may be priceless, but the tax system certainly is not. While romance and tax planning are rarely discussed in the same breath, couples who understand how the rules work can often structure their finances more efficiently. Around Valentine’s Day, when generosity and shared plans are top of mind, it is a good opportunity to consider how gifts, income and business arrangements between partners are taxed.

This article explores several tax planning points for couples, particularly where one or both partners are involved in a business. References to spouses also include civil partners throughout.

Sharing assets between partners

The UK tax system provides particularly generous treatment for transfers of assets between spouses or civil partners who are living together.

From a capital gains tax (CGT) perspective, most transfers between spouses take place on a no gain, no loss basis. This means that no immediate CGT charge arises when an asset is transferred. Instead, the recipient spouse effectively inherits the original acquisition cost and history of the asset.

For inheritance tax (IHT) purposes, transfers between spouses or civil partners who are both long-term UK residents benefit from an unlimited exemption. Assets can be transferred freely during lifetime or on death without triggering an IHT charge.

These rules allow couples to rebalance ownership of assets to make better use of income tax bands, allowances or future planning opportunities.

Income-producing assets and anti-avoidance rules

While spousal transfers are usually tax-efficient, additional care is required where the asset produces income, such as a rental property or an investment portfolio.

If the transferor retains an interest in the asset, HMRC may apply the settlements legislation, which is designed to prevent income being diverted to a lower-taxed spouse while control or enjoyment is retained by the original owner.

To avoid these rules:

• the gift must be outright and unconditional,
• no interest (legal or beneficial) should be retained by the giver, and
• the transfer must not be wholly or mainly a right to income.

Where these conditions are satisfied, the receiving spouse should be taxed on the income in their own right. Proper legal ownership, clear documentation and consistent treatment of the income are critical.

Working together: employing a partner in the business

Many owner-managed businesses rely on the support of a spouse or partner. Employing a loved one is entirely legitimate, but HMRC will expect the arrangement to be commercial.

For a deduction to be allowed, remuneration must be:

• incurred wholly and exclusively for the purposes of the trade, and

• reasonable in relation to the duties performed.

This applies across sole traders, partnerships and companies.

In practical terms:

• the role should be genuine,
• pay should reflect market rates for similar work, and
• responsibilities and working hours should be clearly defined.

Paying an inflated salary simply to extract profits tax-efficiently is likely to be challenged.

Payment must be real, not just on paper

One of the most common errors in family employment arrangements is failing to actually pay the salary.

To secure a tax deduction:

• the remuneration must be properly recorded in the accounting records, and
• it must be paid, not merely accrued.

HMRC and the courts have consistently taken the view that unpaid or informal arrangements do not qualify for relief. Running a proper payroll, paying amounts regularly and retaining evidence of payment are essential.

Small gestures: tax-free trivial benefits

Where a spouse or partner is employed in the business, small non-cash gifts may be provided under the trivial benefits exemption.

This exemption applies where:

• the benefit is not cash or a cash voucher,
• the cost does not exceed £50 per benefit,
• it is not provided under salary sacrifice or a contractual entitlement, and
• it is not given as a reward for work performed.

For directors of close companies, there is an annual cap of £300 per tax year. Importantly, where a family member is also an employee, they have their own separate £300 limit, provided the employment is genuine.

This can allow for modest gifts – such as flowers, chocolates or a meal voucher – without triggering income tax or National Insurance charges.

Entertaining as a couple: where does HMRC draw the line?

Some business owners consider whether a shared meal or event can be treated as staff entertaining where their partner is the only employee.

The tax rules provide an exemption for annual staff events, provided:

• the event is available to all employees,
• the cost does not exceed £150 per head, and
• it is genuinely annual.

Where these conditions are met, no benefit-in-kind charge arises for the employee.

In theory, this could include an annual Valentine’s Day dinner. In practice, HMRC may scrutinise whether the event genuinely qualifies as staff entertaining rather than personal hospitality.

Deductibility and the “wholly and exclusively” test

Even where no benefit-in-kind charge arises, businesses must still consider whether the cost is deductible for tax purposes.

Staff entertaining can be allowable where it is not incidental to entertaining non-employees. However, HMRC may question whether an event involving only the business owner and their partner is genuinely incurred for business purposes.

As with many family-related arrangements, outcomes depend heavily on the facts, consistency of treatment and supporting evidence.

Planning as a couple: broader considerations

Tax planning between partners is often most effective when viewed holistically. Asset ownership, income flows, employment arrangements and future estate planning are all interconnected.

Couples should regularly review:

• who owns income-producing assets,
• whether allowances and tax bands are being used efficiently,
• how family members are remunerated for work performed, and
• whether current arrangements remain appropriate as circumstances change.

Small changes, properly implemented, can produce meaningful tax savings over time.

How we can help

If you and your partner share assets, run a business together, or are considering gifting assets or employing a family member, we can help you put arrangements on a sound footing. We can review existing structures, identify risks, and ensure that planning opportunities are used in a compliant and tax-efficient way. Please contact us if you would like to discuss your circumstances.