We all know about the romantic ideals of marriage – but can you save money at the same time by paying less tax?
The answer broadly speaking is “yes” but the government often changes things so keeping up to date is important.
So, if the excitement and passion dies, at least you know you’re paying less income tax!
Older couples and tax
Even without the proposed changes being made concrete, marriage and civil partnership can have significant financial benefits for many older people. Keeping your money out of the taxman’s coffers and in your bank account! Keep reading for a list of marriage money benefits.
Reduced capital gains tax bill if you are married
Put simply, at the time of writing you will be taxed on any gain worth more than £10,900 when you sell an asset such as shares or property. But a couple will be able to realise a figure of £21,800 before tax through asset transfer, because they both have a capital gains tax exemption. If this transfer were occurring between two unmarried people the capital gains tax liability cannot be shared meaning you pay more tax.
Inheritance tax and being married
The largest financial positive for most married couples is being able to pass on the assets you have earned to your family after you die without paying inheritance tax.
The current Inheritance Tax rate is 40% on every estate that is worth more than £325,000. If you are married or in a civil partnership all of your inheritance can be passed on to your spouse without any inheritance tax to pay at all. The regulations also state that when the second spouse dies more of your inheritance can be left to your children because both of the couple’s allowances can be applied. In effect, this means that you can leave a massive £650,000 to your children before any Inheritance Tax is claimed if you are married.
Obviously this tax benefit applies to young and old couples. But older couple usually have property and savings to leave, rather than mortgages and debt.
Pensions and being married
If you are married then you should inherit any final salary pension from your partner. This could be up to half the amount that the pension holder received. Although there are less final salary pension schemes around now, many older couples have earned large entitlements from their employers, especially if they were employed by the public sector.
Given the construction of society, the theory underpinning these schemes was sound at their inception.
But in modern times, less people are staying married for life and more people are living together rather than marrying at all. This means that many people could be losing out on substantial amounts of pension money.
Modern pension schemes have been revised to reflect these societal changes and each scheme has its own set of regulations. Some pension schemes will only allow payment to a legally married spouse, some allow people to nominate a partner they are not married to, some leave it up to the trustees and some state that it will only be paid if the remaining partner can prove they are financially dependent on the deceased. As things have become more confusing, many people are missing out on money they are entitled to at an already distressing time.
Income Tax and marriage
In general the tax office takes a firm ‘anti-avoidance’ stance stating – if you give assets away to someone else you can’t derive any benefit from them, So if you handed the ownership of a property to a partner, so they didn’t have to pay tax on the rental income, you couldn’t then spend, invest, or benefit in any way form this rental income. THE GOOD NEWS! HMRC does NOT apply this regulation to married couples!
Everyone is taxed as an individual, but married couples can switch assets between each other so they are owned by the spouse who earns less money, thereby reducing the income tax paid on these assets.
Note of warning!
If you do give away an asset to your partner and you are not married then they own that asset free and clear. This means that if you split up at a later date, then you have absolutely no claim to that asset. If you are married then all assets become part of the divorce settlement conversation, whoever’s name they are in.
Bad news for newly-weds.
There is a lot of current political chat about introducing a tax break worth £150 for married couples and those in a civil partnership. As of November 2014 no decisions have been made on this yet but, even if it is agreed, it won’t actually make much difference to young couples who are getting hitched especially when you factor in the cost of the wedding itself!
