Tax Advantages of Tying the Knot
If there is one part of life where tax should not be a factor, it is the decision to get hitched. However, if you have already made that decision, it is worth knowing what tax advantages are available. Whilst the names of some of these directly refer to marriage, it should be noted that the benefits are also available to those in civil partnerships.
Married Couple’s Allowance
If you or your spouse are of advanced years, you may be able to claim the married couple’s allowance. To qualify for this at least one of you needs to have been born before 6 April 1935. You must also be married or in a civil partnership and living together.
The allowance reduces your tax bill by 10%, subject to an upper limit. For the 2019/20 tax year this upper limit is £8,915, meaning you can get a reduction of up to £891.50. This reduction will be applied to the partner with the highest income.
There is good news for couples of a younger vintage as well. Where one partner has little or no taxable earnings, they can transfer up to 10% of their personal allowance to their spouse. In the 2019/20 tax year the personal allowance is £12,500, meaning £1,250 can be transferred across. This transfer will reduce how much of the other person’s income is taxable, reducing their overall tax bill.
It should be noted that you can only transfer unused personal allowance. If the partner with lower income is still using more than 90% of their personal allowance, then the transferable amount will be reduced accordingly.
Transfer of Assets
When you sell a valuable asset, capital gains tax is normally based on the price you sell it for. However, where two people are closely connected, transactions are treated as taking place at market value regardless of the actual price. This is to prevent people moving assets around solely to reduce or eliminate capital gains tax.
Fortunately, there is an exemption for couples. Transfers of assets between spouses are treated as no gain/no loss. This means the new owner is treated as if they had bought the asset at the original cost. In the sad event that a relationship breaks down, this still applies up to the end of the tax year of separation. Take care though. Between the end of that tax year and the decree absolute, divorcing couples will be treated as connected. This can result in surprise tax bills as the market value rule above will apply. If you want to have an amicable divorce, be careful when you transfer assets.
May I wish long and happy relationships to all of our readers, with as many tax savings as you can achieve on the way.