Are you proposing on Valentine’s Day?

Some romantic people may pop the question today, so what better time to think about the practical side of marriage – Tax!

Married couples and civil partners may find it easier to save tax.

First of all if one spouse/civil partner doesn’t use up their personal allowance in a tax year, they can transfer part of it to a spouse/civil partner who is paying tax. That can reduce the tax paying spouse/civil partner’s tax bill for the year or even result in a tax repayment. If this is news to you be quick as you can go back upto four years. This means that you can go back to 5th April 2015 when the relief was first introduced and you won’t have missed out. Here is a link to HMRC website to apply for marriage allowance, if it is relevant to you.

https://www.gov.uk/apply-marriage-allowance

Transfer assets free of capital gains tax

If you both pay tax but one is paying at a higher rate and the other at a basic rate, consider transferring income generating assets to the basic rate tax payer. Outright gifts between spouses/civil partners benefit from spousal exemption. Always seek advice before transferring assets though as there can be tax traps for the unwary.

Gifts on Marriage/Civil Ceremony

Generous family members can make gifts of the following amounts on the event of your marriage/civil ceremony, without those gifts being added back to their estate for inheritance tax purposes on their death:-

Gift to a child £5,000

Gift to a grandchild/great grandchild £2,500

Gift to other person £1,000

Those are in addition to the £3,000 annual exemption, for gifts each tax year.

To be fair those amounts haven’t changed in a very long time and are somewhat less beneficial than they once were. Nevertheless they are still there to be used and can enable older family members to pass more money down the generations.

Jointly owned assets

This is an interesting one! If you own an asset jointly with your spouse/civil partner then the income is generally taxed 50:50 unless you submit a Form 17 to HMRC, to enable you to be taxed on your share of income based on actual ownership. So that also means if you own an asset before you get married/enter a civil partnership and are a higher rate tax payer you could consider gifting a small percentage of that asset to your spouse/civil partner (who is a lower rate tax payer) after marriage/civil partnership and yet pass 50% of the income to your spouse/civil partner for tax purposes.

Alternatively if you are married/in a civil partnership and own an asset jointly but don’t want to be taxed 50:50 on the income, you may be able to benefit from a different split of income, if you have the correct paperwork in place. This doesn’t just apply to married couples/civil partners though. If you are not married/in a civil partnership and own an asset jointly it may also be possible to agree a different split of income to the actual ownership. If you would like to discuss this in more detail, please do not hesitate to contact us.

Inheritance Tax Planning

With the transfer of nil rate bands between spouses for Inheritance Tax purposes, it is much easier for married couples/civil partners to arrange their estates in such a way that they benefit fully from the maximum reliefs available.