Modified on: June 2023
4 ways that marriage can reduce your tax bill
4 ways that marriage can reduce your tax bill
Marriage is sweet, isnât it? When two people come together, with marriage, love and tax in mind.
Well okay, maybe thatâs not the main reason. But the financial planner in me can’t help but appreciate the huge tax benefits of marriage.
So, if youâre thinking about tying the knot, or are already living happily married but havenât yet taken advantage of the tax benefits available, this oneâs 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 doesnât 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 can 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.Â 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%.Â 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.Â 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 (thereâs always conditions!), you can transfer up to 10% of your Personal Allowance to your other half. Ingeniously this is named the âMarriage Allowanceâ and can save you up to Â£250 per year in taxes. You can also backdate the marriage allowance transfer for up to 3 tax years (a saving of Â£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 isnât sexy, and not something you should be thinking about on your wedding night, but itâs incredibly important stuff, nonetheless.
Imagine that John has a final salary pension. The pension provides an annual income of Â£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
- 1. Claim to reduce your income tax
- 2. Transfer assets to reduce capital gains tax
- 3. Get ready for inheritance tax
So thatâs 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. Itâll take five minutes and will save you up to Â£250 per year.
And donât forget, when you apply, you can backdate your application for up to 3 years. Thatâs nearly Â£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 youâre worried that theyâll 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 Â£Â£Â£, 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:
Financial Advisor Bristol and Pension Advisor Clifton
About us: Frazer James Financial Advisers is a financial advisor, based in Clifton, Bristol. As an independent financial adviser, weâre 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 Advisor, we offer an Initial Financial Consultation without cost or commitment.Â 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 â 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.