Taxing natural love and affection

It was in the course of updating some guidance notes for TolleyGuidance that I came across a page of HM Revenue and Custom’s manuals that amused me somewhat. It was BIM37970, entitled “Wholly & exclusively: expenditure having an intrinsic duality of purpose: natural love and affection”.

The note discusses disallowing tax relief on sponsorship of a proprietor’s child. Such sponsorship is considered to have an inherent duality of purpose and could not possibly be incurred wholly and exclusively for the purpose of the trade.

I thought little more of it until last week, when I discovered another occasion where the State has cracked down on tax relief for love.

I was considering the benefits of incorporation for sole traders. I had calculated some figures I felt were of reasonable interest, then I started to consider the further opportunities presented by operating a business through a company.

Well, one such possibility is the opportunity of jointly owning your company with your spouse. A little bit topical, I thought, naming no names.

Now, for many this is just a little bit of straightforward tax planning, but for modern-day romantic tax advisers such as myself, it’s much more than that.

Sharing the means of your livelihood, well, that’s practically straight out of your wedding vows. Committing, in a very real, legal sense, to have and to hold, to perform fiduciary responsibilities as company secretary in sickness and in health…. It brings a tear to my eye just to think of the trusting and honest nature of the couple as they choose to bring a “non-natural” person into the world to nurture and cherish together.

In stark contrast to HMRC’s views on the matter, here love is more than its own reward. The cost of love is not borne by the lovers, but the Treasury.

That cost is, depending on circumstances, up to £22,733 in 2012/13. That’s the maximum tax saved by your soul-mate receiving dividends in their basic-rate and higher-rate bands.

But, in a twist that I am now coining for twitter as “#lovetax”, the Chancellor saw fit to slash the “relief” available for such amour, and cut the additional rate by 5% in 2013/14, the cash benefit plummeting to a mere £15,233 a year.

That’s a third of the cash value of love wiped off on 6 April 2013. Just 51 days after Valentine’s Day too.

Such a pity, I thought. I now see less point in signing half of my burgeoning eBay empire over to Mrs Saunders. But, nonetheless, I do love her so.

I will subscribe her for non-voting 5% preference shares.

About Ben Saunders

I'm a Chartered Tax Adviser and a freelance writer. This is my personal blog about, well, mainly taxation. I might put other stuff in. Who knows.
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