ALTHOUGH most of us marry for love, notably Prince Harry and his bride Meghan Markle this weekend, there are also financial benefits to tying the knot. So if you are legally wed, make full use of the tax, savings and pension advantages that come with saying “I do”.
Rebecca O’Keeffe, head of investment at online broker Interactive Investor, said proper financial planning is at the core of every successful partnership: “Nobody marries for the tax relief, but knowing how to benefit financially may help you live happily ever after.”
Married couples can save up to £238 in tax this financial year by claiming the marriage allowance.
If one spouse earns less than this year’s personal allowance of £11,850, they can transfer £1,190 of the allowance to their other half.
O’Keeffe said: “This applies if their partner earns between £11,851 and £46,350 a year, or £43,430 in Scotland. It does not apply if they earn enough to pay 40 or 45 per cent tax.”
You can backdate claims to include any tax year since April 5, 2015, assuming you were eligible.
Everyone can pass on £325,000 of assets, free of inheritance tax (IHT) on death.
They can also take advantage of the main residence nil rate band, which applies when passing on your home to any children or grandchildren, currently worth another £125,000.
O’Keeffe said this will rise to £175,000 by April 2020: “At this point, homeowners may be able to pass on up to £500,000 to direct descendants free of IHT.”
Married couples and civil partners can double this to a maximum of £1million, because they can pass their IHT allowance to their surviving spouse free of tax on death.
They can also inherit ISA savings and retain the tax benefits for life, through the additional permitted subscription (APS) allowance.
Neither of these is available to cohabiting couples, which exposes more of their estate to hefty 40 per cent IHT tax rates.
Same-sex couples can apply to be civil partners and claim these tax breaks, but currently heterosexual couples cannot.
CAPITAL GAINS TAX
Every adult individual has an annual capital gains tax (CGT) allowance, and this permits them to take £11,700 of gains in the current tax year.
Capital gains above that sum may be taxed at either 10 or 20 per cent, rising to 18 or 28 per cent on investment properties.
O’Keeffe said married couples can transfer assets between each other free of tax, and use this to double their CGT allowance.
She explained: “Split the assets so that you both use your annual allowances, with the lower taxpayer making the additional capital gains to minimise the tax due.”
Married couples also have an edge when it comes to workplace final salary pension schemes, which typically pay 50 per cent of the income to a surviving spouse when the policyholder dies.
Unmarried couples may still benefit, but only at the discretion of scheme trustees, said O’Keeffe: “You may have to jump through hoops before the surviving partner receives the money.”
TRANSFER OF ASSETS
The freedom married couples have to pass assets between each other allows them to take advantage of two other tax breaks.
The personal savings allowance lets basic rate taxpayers earn up to £1,000 in tax-free interest outside an ISA, falling to £500 for 40 per cent taxpayers, while the dividend allowance lets you earn £2,000 from dividends free of tax.
Tom Adams, head of research at independent savings advice site SavingsChampion.co.uk, said spouses can take advantage by splitting their investments and savings, adding: “Any interest or dividends that exceed these allowances should go into the name of the lower taxpayer.”
He warned: “That person technically has sole access to the money and may spend it.”