How marriage can reduce your tax bill

When you think about marriage, your partner and relationship probably come to mind – not how marriage can reduce your tax bill.

But that doesn’t change the fact that you can improve your family’s financial situation if you’re married.

So, if you’re thinking about tying a knot or are already happily married but haven’t taken advantage of the tax benefits available, read on.

Capital Gains Tax

Married couples and civil partners can transfer assets between themselves without any tax implications.

This means married couples and civil partners do not pay capital gains tax on assets they give or sell to one another unless:

  • they separated and did not live together at all in the tax year the transfer was made
  • one partner transfers goods for another’s business to sell on.

You would usually pay capital gains tax on the profit (capital gain) you make after selling an asset if it is above your tax-free allowance of £12,300. Depending on your situation, you either have to pay over 10% or 20% to HMRC (for residential property, the rates are higher).

However, your spouse or civil partner may have to pay tax to the person who received the asset if they dispose of it later.

The gain will be calculated on the difference in value between when you first owned the asset and when they disposed of it.

Predictably, there are potential traps and anti-avoidance to negotiate in certain circumstances e.g. where there is an immediate sale by the recipient.

Inheritance tax

When you die, you might want to pass on everything you own (your estate) to your partner. If you do so as a married couple or civil partners, you will pay no tax.

If you were not in a legal relationship, your spouse would have to pay pay inheritance tax – 40% of the value of the estate that is above the basic Nil Rate Band (NRB) of £325,000.

It is worth bearing in mind that being in a legal partnership will also benefit the person or people you want to eventually receive your inheritance from. This is because the threshold has not been fully used when the first person in a marriage or civil partnership dies; it can go to the survivor. That means the basic tax-free allowance could be as much as £650,000.

However, you can only transfer the threshold if you were married or in a civil partnership when the first death occurred.

You also need to send the request to HMRC within two years of the death of the surviving spouse or civil partner.

Unused Residence Nil Rate Band (RNRB) can also be used on the death of a surviving spouse, with similar rules to those that apply to the main NRB.

Income tax

Married couples and civil partners can reduce their income tax bill by between £364 and £941.50 a year by claiming married couple’s allowance (MCA) if all the following apply:

  • you’re married or in a civil partnership
  • you’re living with your spouse or civil partner
  • one of you was born before 6 April 1935.

For marriages before 5 December 2005, the husband’s income is used to work out the married couple’s allowance. For marriages and civil partnership after this date, the income of the highest earner is used.

Use the married couple’s allowance calculator to work out exactly how much you’ll get.

Otherwise, Marriage Allowance recognises marriage and civil partnerships through the tax system by allowing qualifying couples to transfer 10% of their personal allowance (if unused), rounded up to the nearest multiple of £10, to their spouse/civil partner.  The recipient spouse/civil partner must be a basic rate taxpayer and neither can be in receipt of MCA.

Pension

You may be able to inherit an extra payment on top of your new state pension if you are widowed or a surviving civil partner. The extra payment may consist of an additional state pension or a protected payment.

What you get will depend on whether the deceased reached state pension age or died before or after 6 April 2016.

You may also be able to inherit an extra state pension or lump sum if your late spouse or civil partner reached state pension age before 6 April 2016 and put off claiming their state pension.

Talk to us about other methods to reduce your personal tax bill.

Other posts you might like:

Christmas 2022 Office Closure Dates

Our Dunfermline & Edinburgh offices will close at 5pm on Friday 23 December 2022 and will re-open on Wednesday 4 January 2023. Thanks to our staff, clients, suppliers and business connections for the support you have shown us in the last year. It is greatly appreciated. 

read more

Twelve Days of Christmas Elf Confessions

What do you get when you cross the ‘Twelve Days of Christmas’ with ‘Elf on the Shelf’? Twelve Days of Christmas Elf Confessions of course! Here’s our 12 tax ‘confessions’ corrected to keep you on Santa’s, sorry HMRC’s, ‘good list’ this year.

read more