Modified on: April 2024

4 ways that marriage can reduce your tax bill

4 ways that marriage can reduce your tax bill

Marriage is sweet, isn’t it? When two people come together, with marriage, love and tax in mind.

Well okay, maybe that’s not the main reason. But the financial planner in me can’t help but appreciate the huge tax benefits of marriage.

So, if you’re thinking about tying the knot, or are already living happily married but haven’t yet taken advantage of the tax benefits available, this one’s for you!

Everything you need to know

1. Getting married can reduce your capital gains tax bill

2. Getting married can reduce your inheritance tax bill

3. Getting married can reduce your income tax bill

4. Getting married means your pension continues after you die

The first thing you need to know is that marriage doesn’t have to mean misery. Why? Well, because it gives you plenty of opportunities to save a few quid on your tax bill.

The Government, god bless them, decided long ago that married couples deserved a bit of leeway on their tax bill.

The tax benefits of marriage include saving income tax, minimising capital gains tax and avoiding inheritance tax.

Here are the main tax benefits of getting married:

1. Getting married can reduce your capital gains tax bill

In their wisdom, the Government deemed it fair that married couples could transfer assets between themselves without any tax implications. And remember, whoever owns the asset, is liable for the tax.

Let’s take Jane and John. Jane is a higher-rate taxpayer, whereas John is a basic-rate taxpayer. Jane holds some shares she received from her employer, in the form of RSUs. If Jane sells the shares, she will pay capital gains tax at the higher rate of 20%. However, if Jane transfers the shares to John (tax-free remember), and then John sells the shares, he will only pay capital gains tax at the basic rate of 10%.

Jane also has a rental property. As a higher-rate taxpayer, she pays 40% income tax on the rental income. John doesn’t work and therefore doesn’t make use of his tax-free personal allowance. Jane decides to transfer the rental property to John (tax-free remember). John then receives the rental income, which falls within his personal allowance. In effect, the rental income is now tax-free (instead of being taxed at 40%).

2. Getting married can reduce your inheritance tax bill

Where the tax benefits of marriage really come into their own is on death (how romantic!).

Imagine for a second, John and Jane, who have both worked hard and built up a decent nest egg. They never got around to getting married, most likely because they didn’t understand how tax-beneficial marriage can be!

Unfortunately, John dies unexpectedly, leaving everything to Jane. Because they were never married, Jane pays up to 40% inheritance tax on the money she inherits. Had they been married; Jane would have received the whole lot without paying a penny in tax.

3. Getting married can reduce your income tax bill

Another perk of getting hitched is that you can share part of your tax-free personal allowance.

Conditions permitting (there’s always conditions!), you can transfer up to 10% of your Personal Allowance to your other half. Ingeniously this is named the ‘Marriage Allowance’ and can save you up to £250 per year in taxes. You can also backdate the marriage allowance transfer for up to 3 tax years (a saving of £750!).

4. Getting married means your pension continues after you die

The final thing you need to know is that getting married can improve the death benefits of some types of pensions. Again, this isn’t sexy, and not something you should be thinking about on your wedding night, but it’s incredibly important stuff, nonetheless.

Imagine that John has a final salary pension. The pension provides an annual income of £20,000. If he dies an unmarried man, that pension dies with him. Whereas if he was married, his spouse could receive an income for the rest of her life.

Everything you need to do

So that’s everything you need to know. How about what you need to do?

1. Claim to reduce your income tax

If one of you is a non-taxpayer and the other is a basic rate taxpayer, you need to be checking out the marriage allowance. It’ll take five minutes and will save you up to £250 per year.

And don’t forget, when you apply, you can backdate your application for up to 3 years. That’s nearly £1,000 just sitting waiting for you to claim it.

2. Transfer assets to reduce capital gains tax

If one of you pays tax at a higher rate than the other, you might want to consider transferring assets between you. The gift might be outright and unconditional, so if you’re worried that they’ll run off and steal your money, maybe give this one a miss.

3. Get ready for inheritance tax

If the value of your estate means that inheritance tax is likely, you really should be considering whether marriage might make financial cents (see what I did there?).

4. Get independent financial advice

A little bit self-serving this one. But if you want to know more about how to save £££, book in for an initial consultation.

All the best,

James Mackay, Independent Financial Adviser in Bristol

P.s if you receive a bonus, you can avoid paying tax on your bonus – married or not! Click below to find out more:

Bonus sacrifice – how to save tax



Financial Advisor Bristol and Pension Advisor Clifton

Frazer James Financial Advisers is an Independent Financial Advisor Bristol, Clifton.

About us: Frazer James Financial Advisers is a financial advisor, based in Clifton, Bristol. As an independent financial adviser, we’re able to provide independent and unbiased financial advice. We provide independent financial advice, pension advice, investment advice, inheritance tax planning and insurance advice.

If you would like to speak to a Financial Adviser, we offer an Initial Financial Consultation without cost or commitment. Meetings are held either at our offices, by video or by telephone. Our telephone number is 0117 990 2602.

Frazer James Financial Advisers is located at Square Works, 17 – 18 Berkeley Square, Bristol, BS8 1HB.

This article provides information about investing, but not personal advice. If you’re not sure which investments are right for you, please request advice.

Remember that investments can go up and down in value, you may get back less than you put in.

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