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Love and taxes: a match made in heaven?

14 February 2023
Christie Inns
Reducing Tax, Estate Planning / IHT

First comes love, then comes marriage, then comes…tax savings?

This blog should persuade you that yes, this is the case!

Let’s look at some of the tax benefits available when you’re a married couple or in a civil partnership:

Married Couple’s Allowance

If one spouse is earning below their personal allowance (£12,570), then they can elect to transfer 10% of the unused allowance to their partner.

This can mean tax relief of up to £250 for the spouse receiving the extra allowance, with very little work involved. The transferor can complete this online or by phoning HMRC Self-Assessment to make the election. This can also be done on the transferor’s self-assessment tax return if one is being completed. The claim can also be backdated up to 4 years if you’ve missed out on this in previous years.

It should be noted that the spouse receiving the allowance must be a basic rate taxpayer – if you’re earning over £50,000, you’re unable to make use of your spouse’s unused personal allowance.

Exempt Transfers of Assets

When living together, spouses are able to transfer capital assets, such as property or shares, between each other at no gain/no loss for capital gains tax. This means that if one spouse transfers shares to the other, the receiving spouse will be treated as acquiring those shares at a cost equal to that of the transferring spouse. This can be a bonus if you want to make use of your partner’s capital gains annual exempt amount (Currently £12,300, reducing to £6,000 from 1 April 2023) and remaining basic rate band when selling assets.

A word of warning though, care must be taken when it comes to transferring property that has a mortgage on, as Stamp Duty Land Tax may be payable. This liability however may still be tolerable to save a greater amount of capital gains tax upon future sale.

Inheritance Tax Nil Rate Band

Each individual has an inheritance tax nil rate band of £325,000, meaning that if a deceased person’s total assets amount to below this, no IHT is payable. Anything above this gets taxed at 40%, a hefty burden in the midst of a very distressing time. If, however, all assets are transferred to the surviving spouse upon death, then this is exempt from inheritance tax. What’s more, the deceased spouse can transfer their unused nil rate band to their surviving spouse to be added to their £325,000 nil rate band when they pass away. A transfer worth up to £130,000 in inheritance tax saved!

In addition there is a residence nil rate band of up to £175,000 for homes left to direct descendants for estates worth less than £2 million. That nil rate band can also be transferred when you pass away. That’s worth another £70,000 saving!

Inheritance Tax Planning

There are a wide range of tax planning opportunities for couples when it comes to inheritance tax, and this is an area of tax planning where significant tax savings can be made, with solutions that are relatively simple to implement. If you’re interest in finding out how you can reduce your IHT exposure, then please contact Jan Friend.

As you can see, the tax benefits available to married couples or civil partners can give rise to significant savings if utilised effectively. So, if this blog hasn’t convinced you to get down on one knee then I don’t know what will!

If you would like to find out more, please contact Christie or speak to your account manager

Our services

If you would like to find out more about some of our services that might help you please take a look at our related pages:

Estate Planning

Take a look at our other blogs related to family tax savings

Have you considered trusts for holding family investments?

Avoid Inheritance Tax on Property

The content in this blog is correct as at 14th February 2023 See terms and conditions.

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