Love is in the Air – Tax advantages of romance

    Daniel McAllister
    14th February 2023
    Home » Categories » Tax » Love is in the Air – Tax advantages of romance

    It’s Valentine’s Day! With romance in the air and couples pondering whether to tie the knot we thought we would take you through some of the financial implications for couples, specifically married couples (including civil partnerships).

    Wedding Gifts

    You can take advantage of the Inheritance Tax (IHT) exemption for gifts made on someone’s marriage. This means the gifts are immediately exempt from IHT, even if you die within 7 years.

    For 2022/23 the amounts exempted are:

    Gift from Parent£5,000
    Gift from Grandparent or Great grandparent£2,500
    Gift from either party to marriage£2,500
    Gift from anyone else£1,000

    Remember that getting married automatically revokes an existing will.

    Marriage Allowance

    If the lower earner of a married couple has income less than the personal allowance of £12,570, and the higher earner is a basic rate taxpayer, then 10% of the personal allowance can be transferred to the higher earner to reduce their income tax liability which could result in a saving of £252.

    Transfer of Assets

    There are two potential tax savings from transferring assets between spouses. Firstly, if the asset generates income, then it can be transferred to the spouse with the lowest income to take advantage of lower marginal tax rate. Secondly, on a sale the capital gain may be at a lower tax rate on a spouse, an additional CGT annual exemption could be available or if an asset is split it could result in two annual exemptions being available. All of this would need careful planning in advance of any transaction.

    Pensions

    You can make pension contributions into your spouse’s pension. This is particularly useful if you have already maximised your own pension contributions, or your spouse isn’t working.

    There are rules on the maximum amount which can be contributed, and they will be treated as having made the contribution themselves for the purposes of any tax relief.

    Business Owners

    In a similar vein to transfer of assets above, splitting the ownership of your business could result in income being split between you both producing a tax saving, and any eventual sale could produce two bites of the tax relief cherry re annual exemption and business asset disposal relief. Again, this would need careful planning to ensure all the requirements are met to qualify for the relief.

    Businesses are also able to claim entertaining employees as a deductible expense if it is an annual event available to all employees and under £150 per head. This includes it being available to partners so a £295 meal for two to celebrate Valentine’s Day each year (assuming no other employees!) would receive tax relief, although it may take some of the romance out of the evening!

    Death

    For a single person with no children, Inheritance Tax would be charged at 40% on estates valued over £325,000, but any amount passing to a surviving spouse domiciled in the UK is completely tax free. Any unused nil rate band and residence nil rate band can also be transferred to the surviving spouse and step children are considered as direct descendants for the purposes of residence nil rate band, whereas children of unmarried partners are not.

    Some of you may be aware of the late comedian Ken Dodd’s run-in with HMRC many years ago, as well as providing him with half his routine for the rest of his life, he also ensured he had the last laugh by marrying his partner (they had been together for 40 years) two weeks before he died which saved his estate Inheritance Tax amounting to £11 million. Of course, assets passing to his widow are then potentially chargeable to IHT in her estate so Lady Dodd will no doubt have undertaken some careful IHT planning to reduce the IHT bill on her death.

    Bereavement Support Payment

    In the unfortunate situation of losing your spouse, you may be entitled to Bereavement Support Payment if you are under State Pension age. This is paid over 18 months and amounts to a maximum of £4,300 or £9,800 if entitled to Child Benefit.

    Unmarried

    This blog has focussed on some of the tax reliefs / advantages of marriage but we wanted to find something for those who are unmarried. The only thing we could find would require you to still live separately, and in that case you would both potentially qualify for a reduction in council tax, as well as having a principle private residence each which could be sold without capital gains tax.

    Conclusion

    Hopefully this has summarised some of the steps that married couples can take to plan their tax affairs effectively. Obviously none of these should be the reason to get married (although the Ken Dodd example comes close) and we hope that love will prevail and all couples enjoy the day of romance. Good luck to anyone looking to pop the question!

    IMPORTANT: Some measures may also have unintended consequences which may affect you. With all the above matters we recommend you speak with us before taking any action to ensure you are aware of all the requirements and to provide you with the best planning overall.

    Need Some Advice?

    Looking for some help or a little advice?

    Call today on 01484 534431 or fill in our enquiry form below, and we’ll call you back.

    Clarity on new border checks is vital, says BCC

    The government must clarify plans around new customs processes as firms remain in the dark about crucial aspects of their operation, says the British Chambers of Commerce (BCC). The first…
    From below of delighted aged male entrepreneur in classy outfit standing on street and speaking on cellphone while laughing and looking away

    Over 50s bucking decline in freelance numbers

    Tens of thousands more over 50s are now running their own businesses despite an overall decline in self-employment since 2020, according to the Association of Independent Professionals and the Self-Employed…

    HMRC sends warning to cryptoasset users

    As the use of cryptoassets continues to grow HMRC is warning people to check if they need to complete a self assessment tax return for the 2022/23 tax year to avoid…

    Raise VAT threshold to £100,000, says FSB

    The government should raise the turnover threshold for VAT from £85,000 to £100,000, according to the Federation of Small Businesses (FSB). The business group said that this would give firms…