You may think that proposing to the one you love on Valentine’s Day is a smart financial move, as married couples benefit from several tax perks.
But accountancy firm Blick Rothenberg says the UK’s personal tax system has inconsistencies when it comes to promoting the institution of marriage.
Tax perks of marriage include the marriage allowance, plus advantages relating to capital gains tax (CGT) and inheritance tax (IHT).
However, Blick Rothenberg says the marriage allowance is “worth very little”, plus there are tax disadvantages for married couples relating to buying property.
Nimesh Shah, a partner at Blick Rothenberg, says: “[Former Prime Minister] David Cameron proclaimed the introduction of the ‘marriage allowance’ would act as a catalyst for preserving marriage in modern Britain. However, the take-up has been low, the allowance is worth very little in real terms and it has been costly to administer for HMRC.”
He adds: “When it comes to buying or selling a property, being married is unlikely to be of benefit. For example, for the purposes of the 3% Stamp Duty Land Tax (SDLT), a married couple is treated as one person; therefore, a married couple would be subject to the higher SDLT cost if either owns another residential property, and the couple is not replacing their main residence.
“This may not be the case if the couple is unmarried and one of the couple does not own another residential property. Similarly, a married couple can only have one main residence for capital gains tax purposes.”
Four tax perks of marriage
But there are tax perks to marriage as we explain below.
1. Marriage allowance (doesn’t apply if either spouse is a higher-rate taxpayer)
Married couples can save up to £230 in tax this financial year through the marriage allowance. Here, a spouse earning less than £11,500 a year can transfer £1,150 of their personal tax-free allowance to their other half. The higher earning spouse must only be earning between £11,001 and £45,000 (£43,000 in Scotland) a year – so this wouldn’t apply to higher rate tax payers.
2. Transfer of assets free of capital gains tax
Ian Dyall, head of estate planning at Tilney explains: “Ordinarily, an individual selling an asset for a profit can realise up to £11,300 in gains in the tax year before a tax charge becomes due.
“Before the sale however, assets can be transferred freely between spouses/ civil partners – with no liability to tax – to utilise the extent of their combined capital gains tax allowance (two x £11,300) or indeed they can be transferred in full to the spouse/civil partner who is expected to incur the lowest capital gains tax charge.
“Either way, by splitting assets first, the couple could potentially save thousands in tax. This option is not available to unmarried couples, as movement of assets between co-habiting couples is a disposal for capital gains purposes and would negate the benefits of this.”
3. Big gain on death
Unmarried couples can pass assets valued up to £325,000 upon death, but anything above this is subject to 40% inheritance tax. Therefore if a partner is left a house that far exceeds this value, for example, they could end up having to sell it.
Mr Dyall says: “However, a deceased spouse / civil partner can pass an estate of any worth to the surviving spouse without immediate tax consequences. Furthermore, any unused inheritance tax nil rate band by the deceased can be passed to his / her beloved spouse for their use in the future; creating a potential nil rate band of £650,000 for the survivor.”
From 6 April 2017, the residence nil rate band (RNRB) was introduced and a married spouse is now able to potentially claim a further £200,000, resulting in £850,000 combined. Furthermore, the RNRB will increase in £25,000 increments (per individual) during each of the proceeding three tax-years, until it reaches £175,000 by April 2020.
Mr Dyall says: “This will ultimately provide each individual with potentially £500,000, or £1 million for a married couple, in assets that can be passed to beneficiaries free of inheritance tax.”
4. Gifting rules don’t apply to spouses
There are other inheritance tax advantages of marriage. For example, if you give money or assets to someone during your lifetime it may be classed as a potentially exempt transfer and, should your death occur within seven years from the date of the gift, your beneficiary may be liable to inheritance tax.
However, a gift to your spouse or civil partner is not a potentially exempt transfer and would be ignored for inheritance tax purposes altogether.