Money can’t buy love but can love buy money?
They say money can’t buy love, but in the government’s eye, love can buy you a little bit of money! So, in the month of all things romantic, we give you a Valentine’s update on why getting married comes with more benefits than just being part of a Mr and Mrs. In fact, it carries with it several tax breaks too.
Now we aren’t saying it’s fair but the government has laid down the law and continues to give a clear tax advantage to those who are married or in a civil partnership, compared to lovebirds who haven’t signed that piece of paper.
What is the Marriage Allowance?
The ‘Marriage Allowance’ enables married couples to transfer up to 10% of one spouse’s unused Personal Allowance to their basic rate taxpaying other half. So, for example, if one spouse doesn’t have any earnings and the other earns a salary that falls within the basic rate band (anything up to £46,350 in the current tax year to 5th April 2019), the non-earning spouse can transfer 10% of their unused £11,850 Personal Allowance across, saving the earning spouse Income Tax at 20% on that transferred slice (i.e. £237).
How is Capital gains affected?
For Capital Gains Tax (CGT) purposes, married couples or civil partners can transfer assets freely between each other without triggering a capital gain (if the asset has increased in value since it was purchased). This contrasts with the position for unmarried couples, where any transfer would trigger a potential tax charge, if the asset has increased in value.
The exemption for spouses can help facilitate some useful Income Tax planning, as it enables income-producing assets (such as letting properties and shareholdings) to be transferred from a higher rate taxpaying spouse to a lower rate taxpaying spouse.
Is Inheritance tax (IHT) affected if we are married?
It absolutely is. For unmarried couples, IHT will apply on first death, as passing their estate to the surviving partner will not qualify for the IHT “spousal exemption” that applies for married couples and civil partners.
Being subject to 40% IHT can be financially devastating, particularly if a couples’ estate is comprised largely of the family home. So it comes as no surprise that deathbed marriages can be common if one spouse becomes seriously ill and a large IHT charge looms.
So, whilst it may not be overly romantic to get married primarily for the tax savings, it is easy to see why in the more extreme situations it can be the main reason for tying the knot! For most cases, the tax advantages can be very welcome in minimising tax exposures and passing on the family wealth to the next generation. Changes in government might see one or two minor changes, but it seems we are a long way from seeing any change to a UK tax system that holds such clear advantages for married couples.