Where there is love, there is Tax!
Approximately 10% of marriage proposals happen on Valentine’s Day each year. If you are considering popping the question, then make sure you are aware of some of the tax breaks available for married couples to enjoy.
The Marriage Allowance, introduced 6th April 2015, can allow for £230 of tax to be saved a year for married couples and civil partners. However, 2.7 million eligible couples are still missing out on this tax break.
If one individual within a married couple has insufficient income to fully utilise their tax-free personal allowance of £11,500 for 2017/18, then this tax break can benefit them. If as a married couple you meet these conditions, the individual with the unused personal allowance can transfer 10% of their allowance to their partner. Allowing for the outcome of a tax saving of up to £230.
Inheritance Tax (IHT)
Assets you leave to your partner when you pass away if you are married or in a civil partnership are generally free of IHT. However, lifetime gifts made within 7 years of death, and bequests to others do attract IHT. This occurs when the value of your estate exceeds the nil rate band (NRB) of £325,000.
If there is unused NRB, then you can inherit this if your spouse or partner passes away. This allows you to pass on up to £650,000 of assets to the next generation without incurring IHT.
As with the Nil Rate Band, the same applies to Residence Nil Rate Band (RNRB) – if conditions are satisfied anything unused can be transferred to the deceased’s spouse or civil partner’s estate. RNRB was introduced from April 2017, starting at £100,000 per person and set to increase to £175,000 by April 2020.
Capital Gains Tax (CGT)
When an individual sells an asset they will pay CGT on any gain in excess of the annual exemption, which for 2017/18 is £11,300. However, as both spouses get their own CGT exemption, with effective planning, assets can be arranged for a couple to realise gains of £22,600 before CGT is payable.
Usually when assets are transferred from one owner to another, this can trigger a CGT liability. However, when switching ownership between spouses, this doesn’t apply.
Many people run businesses in their sole names and it is not uncommon to find their spouses are also heavily involved in supporting the business – attending to all the administration, keeping the accounts, talking to clients, booking appointments and generally dealing with the day to day affairs of the operation. Depending upon the involvement of the spouse, especially if the person has little or no income consideration, should be given to paying a salary or admitting the spouse into the business and sharing profits. This can be of great benefit as the Personal Allowance, mentioned above is worth £11,500 for this tax year, and by sharing the profits between spouses can save a basic rate tax of £2300 rising to £4600 if higher rates of tax apply.
For married couples and civil partners who hold a final salary scheme, the surviving spouse will typically receive survivor benefits based on the final salary pension that has been built up by their partner. However, each scheme is different, and the wording of the particular scheme needs to be looked at thoroughly. Some schemes stipulate that it can only be paid to someone who is financially dependent, whereas others will allow you to nominate a partner.
A more flexible option is money purchase schemes. However, they do require you to complete an expression of wishes form to ensure the nominated beneficiary receives the benefits in the event of death.
So marriage can bring you some significant financial perks, as well as a bright and beautiful future.