Spring is in the air; the perfect time for people with a ‘significant other’ to show how much they care; and if it can be done tax-efficiently, so much the better!
Here is a selection of romantic tax tips for couples.
- Dinner for two
Are you a business owner? If your beloved is your only employee, consider having a romantic evening meal. Staff entertaining does not give rise to an income tax charge for employees as a benefit-in-kind within certain limits. There is a £150 per head limit for benefit-in-kind purposes if unexpected tax bills are to be avoided (ITEPA 2003, s 264(2)). This exemption only applies to annual events, so why not make it an annual occasion, such as on the anniversary of your first date together?
What about a business tax deduction for your annual meal? Staff entertaining is allowable if it is not incidental to entertainment which is provided to others (ITTOIA 2005, s 46(3); CTA 2009, s 1299(3)). However, HMRC may need convincing that (say) an anniversary meal with your significant other is ‘wholly and exclusively’ for the purposes of the business!
- Tax relief for your gift?
Thinking of giving your beloved a romantic gift? There is an income tax exemption for ‘trivial’ benefits provided by employers (ITEPA 2003, ss 323A-323C), where certain conditions (paraphrased below) are met:
A: The benefit is not cash, or a ‘cash voucher’.
B: The ‘benefit cost’ does not exceed £50.
C: The benefit is not part of ‘relevant salary sacrifice arrangements’ or other contractual obligations.
D: The benefit is not provided for particular employment services by the employee as part of their duties (or in anticipation of such services).
E: The ‘benefit cost’ of the benefit provided to the employee (or the amounts allocated to the employee where the benefit is provided to a family or household member who is not an employee) does not exceed the available exempt amount.
For Condition E, which broadly applies to employees who are office holders (or family or household members who are employees) of closely-controlled companies, the individual has an annual exempt amount of £300. However, members of the office holder’s family or household who are employees of the same company each have their own annual cap of £300 (see HMRC’s Employment Income manual at EIM21870).
- Don’t forget the ring!
If you’re proposing marriage (or civil partnership), don’t forget to bring a diamond ring! Perhaps you bought it a long time ago in anticipation of the special day that you pop the question? There is no capital gains tax charge on the disposal of certain ‘wasting’ assets, i.e., those with a predictable useful life of 50 years or less (TCGA 1992, s 45). However, as ‘diamonds are forever’, trying to convince HMRC that it is a wasting asset is likely to be challenging!
If the value of the ring is less than £6,000, the gift will still be subject to exemption from capital gains tax (TCGA 1992, s 262). If its value is more than £6,000, tapering relief is potentially available; the chargeable gain is restricted to five-thirds of the difference between the actual disposal value of the asset and the £6,000 chattel exemption limit. But if the disposal value is more than £15,000, marginal relief will not apply (i.e., 5/3 x (£15,000 – £6,000) = £15,000).
The above article was first published in Tax Insider (February 2021) (www.taxinsider.co.uk).