Does the tax saving warrant the investment advice?

There was a naive piece of tax planning advice in the Money section of one of the Sunday broadsheets. At least I thought it was naive so I showed it to my 22yr old son to see what he thought. He was astonished that such advice could appear in the paper.

It was included in a piece titled: "Make the most of marriage tax breaks" and in a section sub-titled: "Transfer the right investments". Here it is:

"It is worth transferring assets between spouses even if one of you pays tax at 50% and the other at 40%". For example, if you have £50,000 of savings earning 3% gross interest a year - or £1,500 - a 50% taxpayer would be left with £750 after tax, whereas a 40% taxpayer would have £900".

It's technically correct of course and the example makes clear what's involved. Transfer £50,000 of investments from one spouse to another to save £150 pa of tax. Even my son could see that the tax saving paled into insignificance in the context of the value of the investments that would need to change hands. £150 is real money of course and would always come in handy.

There's an implicit assumption in the example that ownership of the assets could be legally transferred without incurring any transfer costs. In most cases however such costs would exceed the tax saving making it a daft thing to do.

I am a great fan of using examples when offering tax saving advice. This can help in understanding the tax at stake, whether it is to be saved, deferred or avoided.

As shown by the example above, when you consider the figures involved the tax at stake may not warrant the actions involved - especially when you take account of the costs (and of any risks) of implementing the advice as compared with the tax at stake.