Tax Benefits of Marriage – AP Accounting, Southwell
A few clients have asked me recently about the tax benefits of marriage so it would seem a good time to share this in a blog. You will all be aware I am sure that there are many good reasons for getting married – and for staying single – so any financial/tax ‘benefits’ should be seen within the wider context. Please note that the rules outlined below apply equally to civil partners and heterosexual couples.
If you spread ownership of assets between husband and wife (or civil partner), this can be an effective way to share the income tax burden, especially if one or both of you are in the higher rate band. This is a common tool for both investment and rental income. It is important to remember however that the beneficial ownership of such assets must be transferred to gain the tax benefits. So when selling the asset, the transferee has not only the proceeds (or his/her share of the proceeds) but also the accompanying tax bill to face. Assets can be moved between spouses during the period of ownership to take full advantage of their respective tax positions and annual personal allowances.
A second tax benefit concerns the main residence inheritance tax nil rate band. If one or other of you dies, £325,000 of your estate (increasing to £425,000 in April 2017 and then in steps of £25,000 in 2018 and 2019 and up to £500,000 in 2020) can be passed to whomsoever tax-free; the rest is taxed. If you are married, all of it can be passed to your wife/husband tax-free.
The Marriage Allowance was introduced in April 2015. If both husband/wife are within the basic rate tax threshold and one has an income lower than the Personal Allowance (£11,000 in 2016/17), he/she can ‘give’ part of that allowance (to a maximum of £1060) to his/her partner. This is worth an annual a tax saving of £212. (This requires an application which can be found at www.gov.uk/apply-marriage-allowance ). If one of you were born before 6 April 1935 you will be eligible for the Married Couples Allowance which could cut your tax bill in 2015/16 by between £322 and £835.50 a year. Further information can be found at www.gov.uk/married-couples-allowance
Whilst ISAs cannot be transferred between spouses during their lifetime, they can be transferred on death to the surviving spouse and continue to retain their tax-free status.
Widows, widowers and civil partners can inherit a state pension based on the contributions of their deceased partner if their accrual is higher than their own but this is not an option open to unmarried couples. Workplace pensions can be paid to non-married surviving partners but this is at the discretion of the trustees so you would need to contact the organization to enquire further. Most Defined Contribution pensions allow anyone to inherit but details of the beneficiary should be given to all pension providers. Tax charges depend on the age of the pension pot owner when they died, the type of pension pot and the type of payment you get. Further information can be found at www.gov.uk/tax-on-pension-death-benefits or contact a financial advisor.
It is always a good idea to revisit your Will and update this for any changes to your circumstances. This is particularly true when getting married because in most cases any previous Will that has been made is automatically cancelled on marriage.