While I doubt Andy Murray and Kim Sears will give much thought to tax implications of their marriage when they tie the knot tomorrow and while they unlikely to benefit from the new tax allowance available for spouses and civil partners, their union provides an opportunity to re-examine what, if any, tax benefits are to be had from getting married.
The new allowance will allow a spouse or civil partner who is not liable to income tax above the basic rate to transfer up to £1,050 of their personal allowance to their spouse/civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate.
Given the limited application of the allowance it will be of little benefit to most couples who are considering tying the knot but it should be borne in mind that marriage can offer real financial benefits for many couples and can be particularly attractive for older couples.
For most the biggest advantage to being married is the ability to transfer assets or pass on assets after death without incurring inheritance tax (“IHT”). Of course, this benefit applies as much to younger couples as it does older ones, but it is older couples who tend to focus on what will happen to their assets on death.
Everyone can own assets worth up to £325,000 and currently IHT is charged at 40% on the excess above this amount. If you are married or in a civil partnership assets can be passed to a surviving spouse without any IHT liability and when the second spouse dies you can utilise both partners’ allowance when passing assets on to the next generation. This means married couples can leave £650,000 to their children without incurring IHT.
The transfer of assets between spouses and civil partners is also exempt from Capital Gains Tax (“CGT”). Each individual can incur gains up to £11,600 before CGT is triggered and as both spouses have a CGT exemption; assets can be transferred to make best use of both exemptions.
There is also scope to rearrange the ownership of assets to make best use of income tax allowances. If one spouse pays tax at a lower rate than the other income producing assets can be held in the name of that spouse to reduce the overall exposure to income tax.
Pension planning is another area to consider if you are married. While some pension schemes recognise cohabiting partners alongside spouses and civil partners each scheme sets its own rules with some stating that the pension will only be paid to a legally married spouse. Others leave it to the discretion of pension trustees, some stipulate that it can only be paid to someone who is financially dependent, and some will allow people to nominate a non-married spouse.
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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.