Our colleague Megan, a member of the Informed Choice Paraplanning team, got married last weekend and whilst she and her new husband are away on their honeymoon, she has unknowingly inspired this week’s blog!
More and more couples are choosing not to get married, or enter into a civil partnership, but when it comes to UK law and taxation, marriage can make a positive difference to your finances.
Income Tax
The Marriage Allowance applies when one half of a married couple of a civil partnership is a non-taxpayer (has income below the Personal Allowance) and the other half is a basic rate taxpayer.
The non-taxpayer can apply to transfer £1,260 of their Personal Allowance to their spouse or civil partner. This can reduce their tax bill by up to £252 in the relevant tax year. You can also backdate your claim to include any tax year since 5th April 2020 that you were eligible for the Marriage Allowance.
Capital Gains Tax
Everyone has their own Capital Gains Tax (CGT) annual exempt amount of £3,000. Gains in excess of this are taxed at 10% for basic rate taxpayers and 20% for higher rate taxpayers (rising to 18% and 24% respectively for residential property gains).
Spouses and civil partners who live together can transfer assets between themselves on a ‘no gain/no loss’ basis. This enables couples to transfer assets between each other to take advantage of two annual exempt amounts and/or a lower tax rate.
This type of transfer must be made on an outright basis with ‘no strings attached’.
Inheritance Tax
When you die, any money, property or assets left to your spouse or civil partner is automatically exempt from inheritance tax (IHT).
They will also receive any unused portion of your Nil Rate Band (£325,000) and Residence Nil Rate band (£175,000 although this is tapered once the estate exceeds £2 million), enabling you to leave more to the next generation.
ISAs
If you are married, you can also inherit your spouse’s ISA allowance. For example, if they have £100,000 in ISAs on death, you get this on top of your own allowance, maintaining the tax-efficient status of the funds.
Tax is certainly not the only reason to get married but as you can see, the UK system favours married couples!
Should you have any queries about any of these allowances and whether you should be utilising them, please do not hesitate to contact your Financial Planner.
