Tax advantages of tying the knot

This time of year is really popular for weddings and civil partnerships and, quite understandably, not much thought is given by the happy couple at the time to the tax consequences. The good news is that there are a number of money-saving tax breaks which you can enjoy both on the occasion of the marriage and for the future.

Inheritance Tax

With the costs of weddings and civil partnerships and deposits required for the purchase of the first home standing at a premium, it is worth noting that the wedding could help others with their Inheritance Tax (IHT) planning. This is because there is a specific exemption available which covers gifts up to £5,000 from a parent, up to £2,500 from a grandparent or up to £1,000 from anyone else. To qualify for this specific IHT exemption, the gift would need to be made in consideration of the marriage or civil partnership (so shortly before or on that occasion).

One of the biggest tax benefits is that married couples and civil partners can pass assets to one another during life or on death without an IHT charge arising. Following second death, the nil rate band (currently £325,000) of both spouses can effectively be claimed by the executors so, under current legislation, IHT will only be paid if the estate is worth more than £650,000.

Income and capital gains tax

There are a number of opportunities available to married couples and civil partners to arrange their affairs in a manner that ensures their income tax and capital gains tax liabilities are kept to a minimum.

The Marriage Allowance, which was introduced in April 2015, is available if one spouse does not use all of their personal allowance and the other spouse is not a higher-rate taxpayer. In this situation, they may be able to transfer up to £1,060 (£1,100 for 2016) of their personal income tax allowance to their spouse and this would save £212 in tax (£220 for 2016 / 2017). You can apply for the Marriage Allowance at any time in the relevant tax year at www.gov.uk/marriage-allowance

If one spouse is liable to income tax at higher rates, it may be possible to rearrange ownership of income-producing assets to reduce this liability for the future. However, before any action is taken, it would be worth reviewing their future exposure to income tax and taking into account any impact that the proposed new personal savings allowance (of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers) and the new dividend tax allowance of £5,000 will have on their tax position from 6 April 2016.

Married couples and civil partners may also be able to arrange their affairs so that (on a future sale of an asset) they both benefit from their respective annual exemptions (£11,100 each for 2015/16) and basic rate bands thus reducing the overall capital gains tax liability. However, tax advice should be sought before any action is taken to ensure that favourable capital gains tax reliefs such as entrepreneurs’ relief (for interests in a business and assets used in the business) are not prejudiced by transferring ownership of the asset. Similarly, a transfer of a business, business asset or agricultural land could impact on the availability of favourable IHT reliefs (such as business property or agricultural property relief) so this would need to be considered before any action was taken.

If you need more information on anything covered in this article – or would like to discuss your personal situation in more detail, please contact one of our tax team at your local office or email action@wrightvigar.co.uk – we would be delighted to have an opportunity to help you.