By Katie Taylor – Business and Tax Adviser.
In my previous seasonal blog I highlighted the opportunities for you and your business which you might not be taking full advantage of during the festive period, as today is the day of love, I thought it would be a good idea to highlight some of the tax advantages of being married.
Whilst I understand the above is not the most romantic notion, sometimes being married really can benefit you from a tax perspective!
Inheritance Tax (“IHT”)
The main tax advantage of getting hitched is the IHT benefits available to married couples. Tying the knot allows you to pass assets to your spouse without incurring an IHT charge on the transfer thus allowing for greater flexibility regarding your estate.
What’s more, when the second spouse dies it’s possible to use both partners’ nil rate band when passing assets on to the next generation. This means married couples can currently leave up to £650k (increasing to £1m from 2020) worth of assets, IHT free to their children/ dependents. For more information regarding the new rules coming into effect from 2020 see HMRC’s guidance.
Capital gains tax (“CGT”)
Transfers between spouses are generally exempt from CGT and as such couples can transfer properties, shares and other assets to their spouse tax free.
Most gains generated on an asset disposal (such as shares or property) will be subject to tax above the annual exemption of £11,100. However, as both spouses have this exemption, assets could be transferred to joint ownership, so that between them, a couple could realise gains of £22,200 before tax is applied, and could even be subject to lower rates of tax depending on their income levels.
Further reliefs such as entrepreneurs’ relief could also be utilised between spouses by a transfer of shares thus receiving the benefit of two lifetime allowances as opposed to one.
As noted above, asset transfers between couples are often tax free, therefore transferring income generating assets such as rental properties or profitable shares can be efficient tax planning.
By transferring an asset to a spouse who has little or no income, a couple could benefit from two personal allowances with the remaining income being assessable on the spouse with the lower income, which could result in a significantly lower overall tax bill.
Since February 2014, it is now possible for a spouse or civil partner who doesn’t pay income tax, to transfer up to £1,100 of their personal tax-free allowance to their partner.
However, this relief is currently only available for low income households, as the partner receiving the unused allowance cannot be a higher rate tax payer (earning over £43,000). For further details read HMRC’s guidance on this allowance.
Whilst there are many advantages of being married, the only real tax disadvantage arises where one of them owns their own property. Under the CGT and new stamp duty rules, if your spouse already owns a property, then disposing or buying another could result in a higher tax liability than anticipated.
The obvious disadvantage of getting married is the prospect of getting a divorce…. transferring assets to and from a spouse can significantly muddy the water when trying to figure out who owns what. However these issues are for a different day and different blog, for now let’s just embrace what is meant to be the most romantic day of the year and get married!
If you have any questions on anything noted above or on your tax position then please do get in touch on 01202 717867.