What happens if I get married?
23rd May 2018
Although it’s usually not the main reason people choose to get married or enter into a civil partnership, there are a number of tax benefits which only apply to married couples and civil partners.
Some of these benefits are details below:
- There’s usually no inheritance tax to pay where an individual leaves everything to their spouse when they die. Additionally, if an individual does not fully utilise their inheritance tax exemption when they die, the percentage of any unused exemption is passed onto the surviving spouse. The inheritance tax nil rate band is currently £325,000. This means that where an individual inherits 100% of their spouse’s unused exemption, they can leave assets in their death estate up to the value of £650,000 (being £325,000 x 2) without any exposure to inheritance tax.
- Effective from 6 April 2017, a further inheritance tax relief applies where an individual leaves residential property which they have previously lived in (or equivalent assets) to direct descendants on death. The relief isn’t exclusive to married couples but it means that by 2020/21 a married couple could have a total inheritance tax threshold of £1mil. This is comprised of 2 nil rate bands of £325,000 and 2 residence nil rate bands of £175,000, resulting in a total of £1mil. The residence nil rate band is currently £125,000 per person and will rise to £175,000 by 2020/21.
- Transfers between “connected” parties usually trigger a disposal at market value for capital gains tax purposes which can result in capital gains tax liabilities. Connected parties would include, for example, parents and children. The connected party rules don’t apply to spouses. Transfers between spouses are instead made at “no gain, no loss”. This means that transfers between spouses do not trigger capital gains/losses. Instead the spouse receiving the asset is treated as having bought the asset for it’s original cost. This means that spouses could transfer assets between them (such as, investments) to make effective use of their capital gains tax annual exempt amount. The capital gains tax annual exempt amount is currently £11,700 per person.
- Although married couples are assessed to tax as individuals in the UK, there is some scope for income tax planning between a married couple. For example, if one spouse is a higher rate taxpayer and one is a basic rate taxpayer, the couple could transfer ownership of an income-generating asset to the spouse who is the basic rate taxpayer to reduce the rate of tax suffered on that income. However, advice should be sought before making such transfers (particularly of residential property) as there could be additional tax and legal aspects to be aware of. Lastly, couples who are both basic rate taxpayers can claim the marriage allowance. The marriage allowance lets you transfer £1,190 of your personal allowance to your spouse if they earn more than you. This can save income tax of £238.
Please get in touch with a member of our tax team if you are wondering how marriage would impact your specific tax affairs and if there is scope for any tax planning. Plus don't forget to take a look at our other blogs on 'marriage' and what happens if it doesn't go to plan!