Being married or in a civil partnership can save you some ￡￡￡’s, if you make use of these allowances carefully
Does getting married reduce your tax bill?
Yes, but as always if you meet certain requirements. In this article we expand on some of these benefits/allowances:
Marriage allowance
If you are married or in a civil partnership and your income is less than the personal allowance, you may be able to claim the marriage allowance to help reduce your spouses or partners tax, or vice versa.??????????
The marriage allowance allows your spouse to transfer to you 1,260 of their personal allowance. This can help reduce your tax by ￡252.
As with all things HMRC related, there are however a few rigid conditions that need to be met to be eligible for this relief:
To claim for this allowance, you must register with HMRC clicking here or you can call HMRC directly on?0300 200 3300. You will then be invited to make an official claim.
Reduce you capital gains tax bill
You are charged tax on any gain worth more than ￡6,000 when you sell an asset such as shares or property. But a couple will be able to realise a figure of ￡12,000 before tax through asset transfer, because they both have a capital gains tax allowance. This is very handy especially as the allowance has reduced from ￡12,800 to ￡6,000.
If this transfer were occurring between an unmarried couple, you cannot use this scheme of transferring/sharing your capital gains tax allowance.
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Inheritance tax
Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, possessions, and money. The current Inheritance Tax rate is 40% on every estate that is worth more than ￡325,000.
However, if you are married or in a civil partnership all your inheritance can be passed on to your spouse without any inheritance tax to pay at all.
And when the second spouse dies more of your inheritance can be left to your children tax free as now there is an allowance for both the couple to use, ￡650,000 (2 x ￡325k).
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Pensions
If the partner who receives pension were to die, then their spouse or civil partner would be eligible to inherit the pension from their partner. This could be up to half the amount that the pension holder received, depending on the policy. This is fool proof and something you are entitled to if married.
Pension schemes are starting to reciprocate that less and less people are staying married for life or are just living together rather than marrying at all. Some have revised their schemes to reflect these changes, to allow people to nominate a partner they are not married to, some leave it up to the trustees and some state that it will only be paid if the remaining partner can prove they are financially dependent on the deceased. These are dependent on the pension provider and scheme but something all pension providers do provide is the transfer to a legally married spouse.
Income Tax
HMRC is generous when transferring assets between spouse, even if it is to “avoid” paying tax. SO for example if you have a rental property and you are earning in excess of your tax free allowance and have a spouse who is not working, you could transfer the property to them to take advantage of their tax free allowance and avoid paying any tax on your rental income.
Normally this would come under the ‘anti-avoidance’ stance where you are giving away an asset away to someone else and deriving a benefit from it. This rule does NOT apply to married couples ??
About the author
Mo Chaudhry is a dual qualified Optometrist and Chartered Accountant and heads the Accountancy department at Locumkit. With his unique background he assists locums to practice owners in the Optical industry with their accounting affairs and helping their businesses. If you have any questions on any of the topics covered in this alert, please contact Mo Chaudhry on [email protected].