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 it definitely should be. Because when you find out how much of a tax saver marriage can be, you just can’t help yourself from getting on one knee.
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
The first thing you need to know is that marriage doesn’t have to mean misery. Why? Well, because it gives you plenty of opportunity for saving 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.
Not all taxes mind you, they weren’t that generous, just the nasty ones, like capital gains tax and 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.
So, if Jane pays tax at the higher rate and transfers assets to John who pays tax at the basic rate, any income from that asset is going to be taxed at a lower rate.
Better yet, when the asset comes to be sold, any gain will also be taxed at John’s lower rate.
2. Getting married can reduce your inheritance tax bill
But 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 (clearly, they didn’t know about these wonderful tax benefits). Unfortunately, John dies unexpectedly, leaving everything to Jane.
Because they were never married, Jane pays up to 40% inheritance tax on some of 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 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 £240 per year in taxes.
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. 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 £240 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?).
And they said that romance was dead…
All the best,
James Mackay, Independent Financial Adviser in Bristol
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, 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.
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