Taxation of Couples

Small details, big consequences

• Always confirm legal ownership vs beneficial ownership

• Don’t assume flexibility in income allocation

• Review Marriage Allowance elections annually

• Actively plan around HICBC thresholds

• Be cautious with income shifting strategies

Understanding how the UK tax system treats couples is essential, but it’s not always as straightforward as people expect. Whether you’re married, in a civil partnership, or simply living together, the rules can differ quite a bit, and those differences can have a real impact on your tax position, particularly for farming families, where income, assets and ownership structures are often more complex.

How assets and income are structured between spouses doesn’t just affect income tax. It can also have longer-term implications for succession and inheritance planning.

Married vs cohabiting couples: a crucial distinction

When it comes to tax, couples often assume that sharing a life means sharing tax rules too. Unfortunately, HMRC doesn’t always see it that way.

The system draws a clear line between married couples (and civil partners) and those who live together. While that might not feel particularly modern, it does affect how income is taxed and what reliefs are available.

Living together – why it matters

Even the definition of “living together” matters more than you might think.

For tax purposes, couples are treated as living together unless they are formally or permanently separated. That means even if you’re not under the same roof for a while, HMRC may still treat you as a couple depending on the circumstances.

Jointly owned assets: don’t assume flexibility

One of the biggest misconceptions we see is around shared assets.

Many couples assume they can split income however they like. In reality, if you’re married or in a civil partnership, income from jointly owned assets is usually treated as a 50:50 split, no matter who contributed what. This particularly applies to let property and investment income.

A different split is only allowed if:

• Ownership is unequal, and

• A Form 17 declaration is submitted within 60 days

This makes documentation (e.g. declarations of trust) and notification to HMRC critical for tax efficiency. It’s not something that can be adjusted later on. This can be particularly important for farming families, where land and property are often owned in different proportions, but income is shared across the business. Without the right structure, such as a declaration of trust and, where needed, a Form 17, the tax position may not reflect what was actually intended.

Marriage allowance: small relief, big impact

The Marriage Allowance allows a lower-income spouse to transfer 10% of their personal allowance (£1,260 currently) to their partner. This is often seen as an easy win; transfer part of your personal allowance to your spouse and save some tax.

But like many tax rules, it’s not always that simple. In some situations, particularly where savings income is involved, it can actually leave you worse off. It’s always worth checking whether it’s still beneficial for your circumstances each year.

High Income Child Benefit Charge (HICBC)

This is another area catching more and more families out.

The charge now starts when one partner earns over £60,000 and fully claws back Child Benefit at earnings over £80,000. It is based on individual income, not household income. That can come as a surprise, especially where one partner earns significantly more than the other.

In some cases, the higher earner can end up effectively repaying all of the Child Benefit received, even if they weren’t the one claiming it.

For farming clients, where income can vary significantly from year to year, the Child Benefit charge can appear unexpectedly. A particularly strong year may trigger a charge that wasn’t an issue previously, so forward planning becomes even more important.

Key planning opportunities here include pension contributions, gift aid donations, farmers averaging, and income shifting (where appropriate). Even small adjustments can significantly reduce or eliminate the charge.

Separation: a turning point for tax

If a couple separates, the tax position changes from that point onwards.

• The 50:50 income rule no longer applies

• Income is taxed based on actual ownership

• HICBC liability may shift between partners

Timing can make a big difference here, especially where separation occurs mid-tax year.

Settlements legislation: watch for income shifting risks

Trying to reduce tax by shifting income between partners might seem sensible, but it’s an area HMRC keeps a close eye on.

Where arrangements don’t reflect genuine ownership or commercial reality, the settlements rules can apply. In simple terms, HMRC may tax the income back on the person who originally earned or controlled it.

Many farming businesses are:

• Family partnerships

• With spouses (and often children) involved

• Using flexible profit shares year-to-year

In these it’s common for profits to be shared between spouses, even where one isn’t heavily involved day-to-day. That can work perfectly well from a tax perspective, but only if the arrangement reflects the reality of the business. Getting the partnership agreement right is key.

Key takeaways

The common thread in all of this is that assumptions can be costly.

For farming clients in particular, where land ownership, family involvement and fluctuating income all come into play, it’s even more important to get the detail right. How income is split, how assets are held, and how profits are allocated can all have a significant impact, not just now, but for future planning too. Whether it’s which allowances to claim, or who is liable for certain charges, the detail really matters. A quick review can often highlight simple changes that make a meaningful difference.

If any of this sounds familiar, or you’re just not quite sure how your situation fits the rules, it’s always worth having a conversation. Tax for couples isn’t always intuitive, but with the right advice, it can definitely be managed more efficiently.