For most couples, marriage is a declaration of undying love and commitment to one another. In the UK, marriage also comes with several tax benefits that both partners can share.
While tax benefits might not be your main reason for getting married, it is still useful to know what they are. They can have a big impact on your married life together. Here are the five main tax benefits of marriage.
1. Marriage allowance
Introduced in 2015, marriage allowance allows you to transfer up to £1,250 of your personal allowance (which is the amount you can earn tax free every year) to your husband, wife or partner. With this, your partner can reduce their tax bill by up to £250 every tax year.
To qualify, you must be earning less than your partner and have an income of £12,500 or less. Additionally, your partner’s income must be between £12,501 and £50,000 (or £43,430 in Scotland).
It’s worth noting that marriage allowance claims can be backdated to include any tax year since 5 April 2016 that you were eligible for marriage allowance.
If your partner has since passed away, you can also still make your claim.
2. Tax-free gifts
One of the greatest tax benefits of marriage is that there is no tax on cash gifts you give your partner or spouse during your lifetime.
3. Inheritance tax benefits
Tax benefits of marriage are not just confined to you and your partners’ lifetime. For example, you can inherit your partner’s estate after death without having to pay inheritance tax on it.
Typically, anything above the nil rate band of £325,000 passed between unmarried individuals might be subject to inheritance tax of 40%. Married couples, however, can pass assets of any value to one another without any tax consequences.
Additionally, if you’re married or in a civil partnership and your estate is below the nil rate band, you can inherit your partner’s unused nil rate band when they die, creating a potential nil rate band of £650,000 for yourself.
There is yet another related tax benefit of marriage in form of the main residence nil rate band (RNRB). This allows a married couple to pass a home to their children free of inheritance tax. At the moment, the RNRB per person is £175,000.
That means that in total, you and your spouse might be able to pass up to £1 million (2 x £325,000 nil rate bands + 2 x £175,000 RNRB) of your estate to your children free of inheritance tax.
4. Bigger capital gains tax allowance
Another major tax benefit of marriage is that it doubles your capital gains tax allowance.
Under normal circumstances, every person in the UK has a capital gains tax allowance of £12,300. This is the amount of gains from the sale of an asset that you can realise before you have to pay capital gains tax on it.
Marriage allows you to double this to £24,600. In a nutshell, if you are selling an asset where you stand to realise more than £12,300 in gains, before the sale, you can transfer it to your marriage partner to take advantage of your now double capital gains tax allowance.
5. Individual savings account benefits
If you’re married and your partner passes away, you can inherit their ISA allowance. Basically, you will have an additional one-off ISA allowance equivalent to the value your partner held in their ISA when they died or the value of their ISA when it is closed.
For example, suppose your partner dies leaving an ISA worth £30,000. You will then have an additional £30,000 ISA allowance on top of your own £20,000 ISA allowance for that tax year.
Even if your partner leaves the money in their ISA to someone else, you’ll still be entitled to the higher allowance equivalent to the ISA’s value.
Have recent stamp duty changes affected the tax benefits of marriage?
Unfortunately, recent stamp duty changes might affect couples negatively, particularly with regards to second home ownership.
Under the new changes, buyers won’t have to pay stamp duty on properties valued below £500,000. However, those who purchase additional property, such as a second home, that costs more than £40,000 will have to pay an extra 3% stamp duty surcharge on top of the revised stamp duty rates for each band up to 31 March 2021.
This means that if you buy a home after marrying your partner without selling your old home first, you’ll be liable for the extra 3% stamp duty. That’s because you would technically own two properties at the same time. The second property rule does not apply to mobile homes, caravans or houseboats.
The good news, however, is that you can reclaim a refund as long as you sell your other home within three years of purchasing the new one.
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