Love is in the air! Cupid is busy dusting off his bow and arrow, ready to pierce the unsuspecting hearts of gods and humans alike. And from a finance point of view, it makes sense to be married or in a civil partnership. So, whether you’re a paraplanner considering your clients’ tax affairs, or simply celebrating Valentine’s Day with the one you love, here are five ways that tying the knot can save you money.
1. Income tax: the Marriage Allowance
This allows married couples, and those in a civil partnership, to transfer part of the personal allowance where one is a basic rate taxpayer and the other a non-taxpayer.
That means that if you’re a basic rate taxpayer, you can transfer 10% of your personal allowance to your non-taxpaying partner. This tax year, that’s £1,250 (£12,500 x 10%).
This saves the recipient spouse income tax at 20% – so in this tax year a saving of £250. You can also backdate a claim to include any tax year since 2016 if eligibility criteria was met.
If one of you was born before 6 April 1935, you or your partner can claim the Married Couple’s Allowance instead, which is worth more than the Marriage Allowance.
2. Capital Gains Tax (CGT)
Married couples and civil partners can transfer assets to each other and benefit from the ‘no gain/no loss’ rule for CGT purposes – meaning there is no CGT on the transfer.
This doesn’t extinguish any CGT liability but can ensure the asset is in the hands of the spouse that pays the lowest rate of tax. And it enables both of you to use your CGT exempt amount.
3. Inheritance Tax: gifts and ‘nil rate bands’ (NRBs)
As a married couple or as civil partners, you can make gifts to each other – during lifetime and on death – without any Inheritance Tax (IHT) consequences.
You can also apply for any of your partner’s unused ‘nil rate band’ and ‘residence nil rate band’ to be offset against your own estate on second death.
This means that effectively a married couple or civil partnership who jointly own their home and leave it to direct descendants, will have a total IHT exemption of £1m. This is made up of two NRBs of £325,000 and two RNRBs of £175,000.
4. ISA: inheriting allowance
If a spouse or civil partner dies, the survivor can inherit their ‘individual savings account’ (ISA) allowance as well as having a full ISA allowance themselves.
5. The laws of intestacy
Firstly, everyone should have an up-to-date will in place.
However, if you’re married or in a civil partnership, and you don’t have a will, the laws of intestacy offer some protection. The rules differ throughout the UK – and there is no control over who receives what – which can make things more difficult for the survivor.
All cohabitating couples should remember they have no legal status as common law generally has no legal validity in the UK. So if you don’t want to walk down the aisle, remember that you will not be able to inherit from each other unless you have a valid will in place.
Jane Alford is the Founder of Jane Alford Associates and has been working in financial services for over 30 years. She’s worked for major life companies as a trainer and technical consultant designing and delivering face-to-face training, and has contributed content to LIBF's Diploma in Paraplanning (DipPP).
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