Independent Taxation for Income Tax, Capital Gains, and Inheritance

The introduction of independent taxation in April 1990 affected nearly all married couples. As well as allowing married women privacy in their own financial affairs, another major gain was that many couples – especially retired people – became better off financially.

In contrast to the old system, whereby a married woman’s income was treated as belonging to her husband for taxation purposes, both husband and wife are now taxed independently on their own income. Each has his/her own personal allowance and rate band; and both independently pay their own tax and receive their own tax rebates. Moreover, independent taxation applies equally to the age-related additions and both husband and wife are now eligible for their own higher tax allowance from the age of 65 (and a more generous allowance still after age 75).

A further important point for many couples is that independent taxation does not simply apply to income tax but applies equally to both capital gains tax and inheritance tax. As a result, both husband and wife enjoy their own capital gains tax exemption (£9,600 in the 2008/09 tax year) and their own exemption from inheritance tax (£312,000 in the 2008/09 tax year). Property left to a surviving spouse remains, as before, free of inheritance tax.