Love is in the Air… Along With Some Tax Benefits!

LOVE AND MARRIAGE may go together like a horse and carriage, according to the famous song, but there are also significant tax benefits to ‘getting hitched’ that will be sweet music to the ears of married couples across Northern Ireland.

February is widely known as a celebration of love, ever since the 8^th Century when the first Feast of Saint Valentine was celebrated on the 14^th of the month.

So with romance and the smell of flowers in the air, the team at Lisburn-based digital accountancy specialist Exchange Accountants has put together some tips to help married couples and civil partnerships save a few quid on their tax bills.

“Being married doesn’t have to mean being miserable,” explains Exchange Accountants director Gary Laverty.  “In fact there are a number of tax benefits on offer that might just make the difference when it comes to your partner saying those two words that everyone wants to hear… ‘I do’!”

Exchange Accountants – tax tips for married couples

Let’s talk about tax baby…

Tax benefits from being married include potential savings in income tax, capital gains tax and inheritance tax, as well as pension benefits too.  What’s not to love…

1. Save your love my darling… and your income tax!

Another major benefit of getting married is that you can share part of your unused tax-free personal income tax allowance. To apply, one of you must be a non-taxpayer and one must be a basic-rate taxpayer. If eligible, the spouse with the lower income can transfer up to 10% of any unused personal allowances to their other half every tax year.  This ‘Marriage Allowance’ can save you up to £252 in tax for the current tax year, and it can also be backdated for up to four years – so you could potentially save a further £990 if you haven’t applied yet! You need to make a claim to get it, so it’s worth checking out if you think you might be eligible. Visit https://www.gov.uk/marriage-allowance to find out more.

2. I love you to death

Upon death, assets left in your will to your spouse or civil partner are exempt from inheritance tax.

Be warned, if a couple is in a long-standing relationship but never got around to ‘tying the knot’, an unmarried partner could have to pay up to 40% inheritance tax on any money left to them in the event of their partner’s death where the estate value exceeds the ‘nil rate band’ (currently £325k).  Had they been married, not a penny in tax would have to be paid.  Furthermore, for married couples, any unused ‘nil rate band’ (NRB) allowance can be transferred from a deceased spouse to the surviving spouse – therefore increasing the  inheritance tax threshold for the remaining spouse significantly.

3. I’m going to the chapel and I’m going to… reduce my capital gains tax bill

In a nutshell, married couples can transfer assets between themselves without triggering any capital gains tax (CGT) liability. Each spouse will also get their own tax-free CGT allowance to use each tax year (currently £12,300), so with this in mind, before selling an asset it may be worthwhile transferring ownership into joint names to double the CGT annual exemptions when the asset is sold and thus reduce your capital gains tax bill overall as a couple.

Furthermore, it is worth remembering that whoever owns the asset is liable for the tax when it is sold. So for example, an (already) higher rate taxpayer planning to sell a property owned in their sole name could firstly transfer full or part ownership of the property to a basic rate taxpaying spouse; effectively meaning the rate of capital gains tax applied to gains arising within their unused basic rate band would be lower (currently 18% instead of 28% for disposals of residential property).

The transfer of assets can also work for rental properties.  For example, a higher rate taxpayer with a rental property would pay 40% tax on the rental profits. If that person’s spouse or civil partner has some of their tax-free personal allowance or even their basic rate band remaining, then the property could be transferred tax-free (either fully or partly) into the spouse or civil partner’s name; thus benefitting from their unused tax-free personal allowance and/or unused basic rate band. Broadly speaking in this case, the rental income could in effect be tax-free (or at the very least subject to tax at 20% instead of 40%).

4. Give a little bit of ‘a pension’ to me

If you’re married or in a civil partnership, your pension could potentially live on after you die and your spouse or civil partner may be able to receive an income for the rest of his or her life.

Many private or workplace pension schemes provide death benefits for a spouse or civil partner in the form of a lump sum payment or taxable ‘survivor’s pension’.

If you are over State Pension age, you can claim extra payments from your husband, wife or civil partner’s State Pension.  What you get and how you claim will depend on whether you reached State Pension age before or after 6 April 2016.

If you reached State Pension age before 6 April 2016, you’ll get any State Pension based on your husband, wife or civil partner’s National Insurance contribution when you claim your own pension.

If you reached State Pension age on or after 6 April 2016, you’ll receive the ‘new State Pension’ and you may be able to ‘inherit’ an extra payment on top of your pension.

More information on what and how much you may be able to claim is available at  https://www.nidirect.gov.uk/contacts/northern-ireland-pension-centre.

Exchange Accountants was established in 2011 and provides premier accountancy services and tax advice to a wide variety of locally based SMEs and individuals.  Exchange was the first accountancy practice in Northern Ireland to be recognized as a Xero Gold Partner – and in 2021, the company achieved Platinum Partner status with the market-leading cloud accountancy software provider.

For more information on Exchange’s digital accountancy and tax support services, click on www.exchangeaccountants.com, email info@exchangeaccountants.com or call 028 9263 4135.