So, Cupid’s arrow has struck and you’ve met the person you want to spend the rest of your life with. In years gone by, the obvious next step (providing, of course, that the loving feeling is mutual!) would be to get a date in the diary and start the hunt for a wedding venue. These days though, remaining unmarried is much more commonplace and plenty of couples buy a house, have kids and grow old together without ever tying the knot. But if you’re weighing up the pros and cons of getting hitched, it might be worth noting a few of the advantages when it comes to your taxes.
(Warning: None of the points below should ever be used as part of a marriage proposal.)
For many couples, this will be the most immediate benefit, as it can result in £250 off your tax bill per year. It works like this: if one partner earns less than the personal allowance (£12,500 at the time of writing), and the other partner is on the basic, 20% rate of tax (earning between £12,501 and £50,000) the lower earner is eligible to transfer 10% of their personal allowance to their spouse. So the higher earning spouse gets an extra £1,250 to their personal allowance. 20% of this amount (£250) is given as a tax break.
That might all sound complicated, but the application process is actually quite straightforward and only takes only a few minutes at the gov.uk website. And of course, we’re happy to help with any part of the process, from checking your eligibility to putting in the application for you. Drop us a line if you’d like to find out more.
Good news – if you’ve been missing out, you can backdate your claim as far as the 2015/16 tax year, which could result in a nice big cheque in the post.
One extra perk that comes with conjugal bliss is the ability to be a little more flexible with the arrangement of your finances. Married couples may be able to reduce the amount of income tax they pay, as well as the amount of capital gains tax they are liable for if one partner sells an asset such as property.
With regards to income tax, you can switch any assets that may earn income, such as savings and investments, into the lower earner’s name. This could reduce any tax paid on interest, and lower the family’s overall bill.
As for capital gains tax, (the tax you pay when selling valuable items such as property or shares), married couples have the opportunity to reduce their bill here too. If you are liable for capital gains on an asset you are selling, you can pass some of the asset to your spouse and use both partners’ CGT exemption. This effectively doubles the allowance, meaning a significant reduction on your tax bill.
If you think that you could save on your tax bill through either of these means, we’d be happy to help you get everything sorted. Get in touch here with any queries you may have and our friendly team will help you understand your options.
It’s probably the last thing on your mind as you sit starry-eyed and plan your lives together, but being married does carry significant benefits should one of you pass away. These include inheritance tax, ISA allowances, and pensions.
Firstly, there’s the small matter of inheritance tax. If one spouse dies, the widow(er) does not have to pay a penny. This isn’t the case for unmarried couples, no matter how long you might have been together. For the unwed, inheritance tax kicks in once the value of an estate exceeds £325,000. It kicks in hard too: 40% on anything above the threshold. (There’s a reason Ken Dodd married his partner just two days before he died!).
If kids are part of the equation, it’s worth bearing in mind that the remaining spouse ‘inherits’ their partner’s inheritance tax allowance, effectively doubling the amount that they can pass on to £650K before the children have to pay tax.
Secondly, if one partner dies, the second partner is entitled to their ISA allowance for one year after their death. So if one partner has an ISA valued at £20K, their widowed spouse is entitled to an extra £20K of tax-free savings in the year following their death.
Last but not least, in many cases marriage is the only way to guarantee that your significant other will get some of your pension should you pass away before them. Many pension schemes will pay 50% of a final salary pension to the remaining spouse, but only if they are legally a spouse. Stay unmarried and you run the risk that the company won’t pay out.
So there you have it: getting married might not be for everyone - and you certainly shouldn’t make your decision to tie the knot based on tax reasons - but if marriage is on the cards anyway then it’s useful to know there are some financial advantages to saying ‘I do’.
If you’d like to find out more about any of the points from this blog, just drop us a line in whatever way suits you best, and we’ll be happy to discuss your situation. Get in touch here.
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