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John M Taylor & Co | Accountants Paisley/Taxation/Vat Returns/Business Start Ups/Sage/Payroll/Bookkeeping

Tax and Marriage... Six great reasons to tie the knot

Given that love is in the air with Valentine's Day around the corner we thought now would be a good time to remind you of six of the main tax benefits that arise from getting married.  Despite all the obvious benefits of getting married or entering a civil partnership there are of course a number of financial advantages to tying the knot.  

  • Under capital gains tax (CGT) rules you are able to transfer assets to your spouse free of tax.  This can be a valuable exemption as it can double the CGT tax free annual exemption to £22,000 if you are selling an asset at a gain and it is held in joint names. There are circumstances where it would not be beneficial to transfer assets between spouses however, particularly where the assets are business related, so you should seek advice from a qualified professional before taking any action on this front.

  • Those who are lucky enough to be in their eighties (born before 06/04/1935) and married continue to benefit from the transferable married couple’s allowance.  This provides for a reduction in tax payable of up to £816 per annum for those whose income falls within the specified limits.  Any unused allowance in one spouse’s hands can be transferred to the other spouse.

  • For those couples who are younger the new transferable personal allowance allows married couples to transfer up to £1,060 of their tax free personal allowance to their higher earning spouse, provided that spouse do not pay tax at higher than the basic rate of tax.  This can be valuable if one spouse has low earnings and does not get the full benefit of their personal allowance.

  • Under income tax rules a property held in joint names is automatically deemed to be held 50/50 for income tax purposes regardless of the actual legal split of ownership.  This can be useful where one spouse pays tax at a higher rate than the other, transferring a 10% interest to the lower earning spouse results in 50% of the income being taxed in their hands. 

  • For those couples lucky enough to have total assets in excess of £650,000, careful IHT planning can potentially save up to 40% of that excess value.  This is based upon the fact that spouses are permitted to transfer assets between each other without any inheritance tax (IHT) implications.  As a result effective lifetime planning or will planning can potentially save up to 40% of the value of the assets transferred to the surviving spouse as the transfer will be free of IHT.  This will then mean that any IHT bill can be either deferred until the death of the second spouse or allows time for further planning to potentially avoid IHT on the second death also. 

  • Under pension rules, a surviving spouse will often inherit a widow’s pension based upon their deceased spouse’s pension fund.  This can sometimes be the case for co-habiting couples also but this is not guaranteed. 

    More importantly for drawdown style pension policies, these can be transferred to anyone without any income tax cost prior to benefits being drawn.  However, based on current rules, once benefits have been drawn from the pension fund there can in be an automatic tax charge on death of 55% of the fund value before the remaining fund can be transferred to anyone other than a surviving spouse or civil partner.  The good news is that from April 2015 this 55% tax charge on death is likely to be scrapped as part of the reform of pension rules intended to make pensions more flexible.  

For the purposes of this article any references to spouse should be taken to include civil partners and marriage to include civil partnerships.  

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