Tax season can be a daunting time for many couples, but did you know that being married can actually provide numerous tax advantages? Understanding these benefits and how to leverage them can significantly impact your financial situation. In this guide, we’ll explore the tax benefits available to married couples in the UK and how you can make the most of them.
If you are looking for more in-depth advise, get in touch with us, King & Taylor has been helping businesses for over 150 years in Kent so we know what we are talking about! Below are some more blog posts that you might find useful if you are looking to save money:
Maximising Tax Benefits for Homeowners in the UK
How Does Income Tax Work in the UK: A Simple and Easy Guide
Understanding Capital Gains Tax: A Comprehensive Guide
1. Marriage Allowance
The Marriage Allowance is a tax break available to married couples and civil partners in the UK. It allows one partner to transfer a portion of their Personal Allowance to their spouse, potentially reducing their overall tax bill. For the 2023/24 tax year, the Marriage Allowance lets one partner transfer up to £1,260 of their unused Personal Allowance to their spouse, providing a tax reduction of up to £252.
This is the example the UK government website gives:
UK Marriage Tax Allowance Example
Your income is £11,500 and your Personal Allowance is £12,570, so you do not pay tax.
Your partner’s income is £20,000 and their Personal Allowance is £12,570, so they pay tax on £7,430 (their ‘taxable income’). This means as a couple you are paying Income Tax on £7,430.
When you claim Marriage Allowance you transfer £1,260 of your Personal Allowance to your partner. Your Personal Allowance becomes £11,310 and your partner gets a ‘tax credit’ on £1,260 of their taxable income.
This means you will now pay tax on £190, but your partner will only pay tax on £6,170. As a couple you benefit, as you are only paying Income Tax on £6,360 rather than £7,430, which saves you £214 in tax.
2. Capital Gains Tax Exemptions
Married couples can also benefit from Capital Gains Tax (CGT) exemptions when transferring assets between each other. Transfers of assets between spouses are generally exempt from CGT, meaning you can rearrange your investments or property holdings without triggering a tax liability. This can be particularly advantageous when planning for retirement or estate planning purposes. You can benefit from this in a number of different ways.
Examples of how a married couple can benefit from Capital Tax Gains
Here are some examples of how a married couple can benefit from Capital Gains Tax (CGT) exemptions in the UK:
- Transfer of Assets: When one spouse sells or transfers an asset to the other spouse, such as stocks, bonds, or property, this transfer is generally exempt from CGT. This means that no capital gains tax is payable on the transfer, allowing couples to rearrange their investments or real estate holdings without triggering a tax liability.
- Utilizing Individual Annual Exemptions: Each individual in a married couple is entitled to an annual Capital Gains Tax exemption. As of the 2023/24 tax year, this exemption stands at £12,300. By strategically structuring asset sales or transfers between spouses, couples can effectively double their annual exemption, potentially allowing them to realize gains of up to £24,600 without incurring any CGT liability.
- Entrepreneur’s Relief: For couples who own a business or shares in a company, Entrepreneur’s Relief can be a valuable tax advantage. This relief reduces the rate of CGT on qualifying business assets to 10%, up to a lifetime limit of £1 million per individual. Married couples can effectively double this relief by each utilising their individual lifetime allowance, potentially resulting in substantial tax savings upon the sale of a business or qualifying assets.
3. Inheritance Tax Planning
Married couples can also benefit from favorable inheritance tax (IHT) treatment. Assets passed between spouses are generally exempt from IHT, meaning that no tax is payable on the transfer of assets upon death. Additionally, married couples can utilise the spouse exemption to effectively double their individual inheritance tax thresholds, potentially saving their heirs a significant amount in tax liabilities.
Do married couples pay inheritance tax?
Married couples and civil partners are generally exempt from paying inheritance tax (IHT) on assets passed between them. This exemption is often referred to as the “spouse exemption.” When one spouse passes away, any assets left to the surviving spouse are typically exempt from inheritance tax, regardless of their value.
Additionally, married couples can benefit from other inheritance tax allowances and reliefs, such as the nil-rate band and the residence nil-rate band. These allowances effectively increase the threshold at which inheritance tax becomes payable, potentially allowing couples to pass on more wealth to their heirs tax-free.
However, it’s important to note that the spouse exemption and other inheritance tax reliefs apply primarily to assets passed between spouses upon death. Transfers of assets between spouses during their lifetime may have different tax implications, and it’s advisable to seek professional tax advice to understand the potential tax consequences of such transfers.
Overall, while married couples in the UK generally do not pay inheritance tax on assets passed between them, careful estate planning and tax advice are essential to optimise tax efficiency and minimise potential tax liabilities for future generations. You can read more in this subject here.
4. Pension Benefits
Married couples may also benefit from pension-related tax advantages. Spouses can inherit each other’s pensions without incurring inheritance tax, and in some cases, may be entitled to receive their partner’s pension benefits in the event of their death. Furthermore, contributions to a spouse’s pension can be an effective way to reduce taxable income, as pension contributions are typically tax-deductible. You can find out more on pensions and how being married will benefit you on this great post by Lottie.
5. Marriage and Residence Nil Rate Bands
Finally, married couples can benefit from the Marriage and Residence Nil Rate Bands when it comes to inheritance tax. The Residence Nil Rate Band provides an additional tax-free allowance for individuals passing on their main residence to direct descendants, such as children or grandchildren. Married couples can effectively double this allowance by combining their allowances, potentially allowing for significant tax savings when passing on property to heirs.
Tax Benefits for Married Couples
Being married comes with various tax benefits that can help couples save money and plan for the future more effectively. By understanding these benefits and how to leverage them, you can optimize your tax situation and maximize your financial well-being as a couple. However, tax laws can be complex, and individual circumstances may vary, so it’s always advisable to seek professional tax advice tailored to your specific situation.
At King and Taylor, we specialise in providing comprehensive tax planning and advisory services for married couples. Contact us today to learn more about how we can help you make the most of your tax benefits as a married couple.
