Approximately 10% of marriage proposals happen on Valentine ’s Day each year. Whilst taxation is hopefully low on the list of reasons you might be about to propose, if you are considering popping the question, Nicola Roby, Director at CHW Bolton Accountants looks at some of the tax breaks married couples can enjoy.
The Marriage Allowance can enable eligible married couples and civil partners to save up to £230 of tax a year. Despite being introduced on 6 April 2015, it is estimated that 2.7 million eligible couples are still missing out on the tax break.
The relief is designed to benefit couples where one spouse has insufficient income to make full use of their tax-free personal allowance (£11,500 for 2017/18). Where the couple meet the qualifying conditions, the spouse with the unused personal allowance can elect to transfer 10% (£1,150) of the allowance to their partner, offering a tax saving of up to £230 for 2017/18.
Furthermore it is possible to backdate the claim to 6 April 2015, to obtain an additional tax saving of up to £212 for 2015/16 and £220 for 2016/17.
Inheritance Tax (IHT)
If you are married or in a civil partnership, then anything you leave to your partner after you die is generally free of IHT. Bequests to others and lifetime gifts made within seven years of your death on the other hand attract IHT if the value of your estate exceeds the nil rate band (NRB) which is currently £325,000.
If your spouse or civil partner passes away you can also inherit their unused NRB, potentially allowing you to pass on up to £650,000 of assets to the next generation without incurring IHT.
In addition, the residence nil rate band (RNRB) was introduced from April 2017, starting at £100,000 per person and set to increase to £175,000 by April 2020. Like with the NRB, if the conditions are satisfied it is possible for any unused RNRB to be transferred to the deceased’s spouse or civil partner’s estate.
Capital Gains Tax (CGT)
When an individual sells an asset they will pay CGT on any gain in excess of the annual exemption, which for 2017/18 is £11,300. However, as both spouses get their own CGT exemption, with careful planning, assets can be arranged so that effectively a couple can realise gains of £22,600 before CGT is payable.
Usually when assets are transferred from one owner to another this can trigger a CGT liability but this doesn’t apply when switching ownership between spouses.
For married couples and civil partners who hold a final salary scheme, the surviving spouse will typically receive survivor benefits based on the final salary pension that has been built up by their partner. However, each scheme sets its own rules and the wording of the particular scheme needs to be looked at. Some schemes stipulate that it can only be paid to someone who is financially dependent, whereas others will allow you to nominate a partner.
With regards to money purchase schemes, these are much more flexible, but do require you to complete an expression of wishes form to ensure that the nominated beneficiary receives the benefits in the event of death.
So marrying the person of your dreams doesn’t have to just mean a bright and beautiful future together. It can also bring some significant financial perks too! We hope we have given you some food for thought if you are contemplating that proposal this Valentine’s Day!
For advice on these or indeed any other tax related matters contact Nicola Roby at CHW Bolton Accountants at firstname.lastname@example.org or on 01204 534031.
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