We all love a good wedding and getting married can have the added benefit of being tax efficient. However, the wrong marriage can become expensive so do not marry just for the tax savings!
By now I hope that everyone who can do so, is transferring their unused personal allowance to their spouse/civil partner. So, if the lower earner has income of £11,850 or less (2018/19 tax year) they can transfer £1,190 of their personal allowance to their spouse/civil partner. You can go back upto four years if you have not been doing so. Although it may not be a huge saving every penny counts.
Consider whether it would be worth transferring some income generating assets to the spouse/civil partner with the least income.
Capital Gains Tax
Transfers between spouses/civil partners should not trigger capital gains tax charges.
Each individual can make a gain on sale of assets of up to £11,700 in tax year 2018/19 without paying capital gains tax. If you are a married couple, make sure both annual exemptions are used by considering the transfer of assets before sale. That’s £23,400 capital gains tax free! Certain assets such as business assets and some properties can be a little more complicated. Also seek professional advice before doing anything but just be aware that you may be able to reduce your capital gains tax liability with a little bit of forward planning.
When we sell our homes, most people don’t have capital gains tax to pay as they are selling their principal private residence. There are a few exceptions to the rule. Another thing to consider though is what happens when two people marry.
For those lucky enough to each own a property when they marry they need to elect, within two years of marriage, which one is to be treated as their main residence. It may be that they intend to live in one which will be the main residence and the other is to be rented out or sold. It is always important to seek advice on this area as sometimes transferring an asset at the wrong time can be costly. Just remember to discuss it with your accountant so that you can ensure you do not pay more tax than you should.
Inheritance Tax and Wills
Marriage voids your Will unless it was carefully drafted in anticipation of marriage so write a new will without delay! We can help you with writing a Will.
Married couples/civil partners can benefit from transferring assets to the surviving spouse/civil partner on death free from inheritance tax thus delaying the tax charge.
Also, as every individual has a nil rate band of £325,000 a married couple can make use of two lots of that so a total of £650,000. Add to that the new residence nil rate band relief then married couples/civil partners (with children) could benefit from further relief of upto £175,000 each by 2020/21. So, to summarise, by 2020/21 a married couple could, in the right circumstances, leave an estate valued at £1m without incurring an inheritance tax liability (assuming they have children and their home is valued at £350,000 or more in 2020/21). There is residence nil rate band relief before 2020/21 but it is being phased in gradually.
Gifts on Marriage
Let’s not forget the marriage itself. Parents can give £5,000 each to the couple as a wedding gift and grandparents can give £2,500 each to the couple on marriage free of inheritance tax.
There are limits to how much people can save each year in an ISA so when you are married you suddenly have two limits as a couple to arrange your finances tax efficiently.
Also, it is now possible when one spouse dies to transfer the ISA to their surviving spouse to continue to use with the tax benefits of tax free interest. That ability did not exist for spouses who died before 3 December 2014.
We have all heard in the papers that Sir Ken Dodd and Sir Bruce Forsyth may have transferred wealth to spouses inheritance tax free. Well, you can make sure that your marriage works tax efficiently for you too.
This is not meant as definitive advice and should not be relied upon, it just illustrates possible tax savings. Always obtain advice for your specific circumstances. Please pick up the phone or email us if you would like to discuss anything further.