“I do!” 3 tax breaks only married couples can access

Getting married or entering into a civil partnership is one of the most significant milestones in your life, as you publicly declare that you and your spouse or civil partner are legally a united front.

Crucially, tying the knot also gives you access to specific tax breaks that are exclusively available to married couples.

Read on to discover three of these, and how you could use them to make your earnings, investments, and financial legacy more tax-efficient.

1. Reduce your Income Tax bill using the Marriage Allowance

If you, your spouse, or civil partner do not pay Income Tax, or one of you has an income below the Personal Allowance (£12,570), you may be able to make use of the Marriage Allowance.

So long as the higher earner in your marriage or civil partnership only pays the basic rate of Income Tax (having earnings between £12,571 and £50,270), then the lower earner can transfer £1,260 of their tax-free Personal Allowance to their spouse or civil partner.

In doing so, it reduces the higher earner’s Income Tax by up to £252.

While this may only be a small sum, it could still be sensible to explore it. Making full use of the Marriage Allowance every tax year for a decade could save you up to £2,520 in tax.

2. Sharing assets to reduce your Capital Gains Tax liability

Spouses and civil partners can gift assets to one another without facing a Capital Gains Tax (CGT) charge.

CGT is payable on the profits generated when you sell certain assets. This includes:

• Shares held outside of a tax-efficient wrapper, such as an ISA or pension
• Possessions worth more than £6,000, excluding your car
• Property that is not your main residence
• Business assets.

The CGT rate you will pay depends on your marginal rate of Income Tax. At the time of writing, the main rates of CGT that you are most likely to face are:

• 18% for basic-rate taxpayers
• 28% for higher- and additional-rate taxpayers.

Before CGT is due, you can generate tax-free gains up to your Annual Exempt Amount. This stands at £3,000, and this exemption is individual, so a couple could theoretically gain up to £6,000 in a single tax year before facing a charge.

Plus, you can transfer assets to your spouse or civil partner free from CGT.

So, if you wanted to sell shares held outside of an ISA or pension, but had already used your Annual Exempt Amount for that tax year, you could transfer them to your spouse or civil partner. They could then sell the assets using their own exemption, mitigating some or all of the charge.

You may also choose to do this if your spouse or civil partner pays a lower rate of Income Tax than you. If they are in the basic-rate tax band and you are in the higher- or additional-rate band, gifting assets to them before selling would be more tax-efficient.

Bear in mind that any CGT charge your spouse or civil partner needs to pay would be calculated based on the value of the asset when you first owned it, not when it was transferred to them.

3. Inheriting assets free from Inheritance Tax

Inheritance Tax (IHT) is charged at 40% as standard, and can significantly eat into any wealth you leave behind for your beneficiaries.

Fortunately, your spouse or civil partner can inherit your estate entirely free from IHT. So, there will be no bill to pay if you leave your assets to them.

And, before your beneficiaries (aside from your spouse or civil partner) pay IHT:

• They can inherit a certain amount of your estate tax-free – this is your “nil-rate band”, and it’s worth up to £325,000.
• Additionally, your loved ones may also benefit from the residence nil-rate band (up to £175,000) if you leave your main home to your direct descendants, such as children and grandchildren.

These thresholds are individual, and importantly, your spouse or civil partner will inherit any remaining nil-rate band that you didn’t use during your lifetime.

As a result, they could:

• Inherit your entire estate free from IHT when you pass away
• Use your unused nil-rate bands, plus their own, to leave up to £1 million IHT-free to your children and grandchildren.

It’s important to note that the IHT nil-rate bands are now frozen at their current rates until 2030.

So, more and more of your estate could be dragged into the taxable bracket over the years. Working out how to mitigate this tax now could save your family thousands in future.

Get in touch

We understand that you could be worrying about tax right now. If you’d like to find out more about the tax breaks available to you, please get in touch.

Email enquiries@prosserknowles.co.uk or request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning or estate planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.