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September 10th 2015 / BY: Wisteria

Tax and Marriage

Unfortunately tax doesn’t end with getting married, and there are no honeymoons from HMRC, but don’t let that get you down. Below read some tax benefits of marriage, especially if you’re old.

IMPORTANT NOTE:

Throughout this article, and the whole of tax legislation, civil partners enjoy exactly the same benefits as married spouses, so in each example below Kevin and Karen could as easily be Kevin and Kenneth, Karen and Kathy etc. Also all characters are fictional and any resemblance to famous people or pirates is purely coincidental.

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Inheritance Tax Benefits For Married Couples

So you’re going to die soon, and you want to leave your house to someone special….marry them!

Basics

Inheritance tax is THE WORST, during your life you pay income tax on everything you earn, you pay VAT on anything you buy, and when you die your entire estate can be taxed all over again. The government allows an initial tax free threshold of £325,000, above this everything is taxed at 40%, except for some specific exemptions. Bear in mind that a person’s estate includes their house, and with constantly rising prices more and more people are falling within the scopes of IHT.

There are as many complications, exceptions, and exemptions as you can imagine but the most interesting here are:

Spouse or Civil Partner Exemption

Married couples can give any value of gifts to each other during their lifetimes without inheritance tax being due on them. In fact an estate is completely exempt from IHT if the deceased leaves everything to their partner, as long as they both live permanently in the UK

Transferring your IHT Threshold

Any of the deceased’s tax free threshold that is unused can be transferred to the surviving partner.

Kevin the pirate dies at sea and leaves a box of gold coins worth £200,000 to his daughter Kate. His houseboat goes to wife Karen, as does his remaining threshold of £150,000. When Karen dies of scurvy two years later her houseboat is worth £400,000. She leaves this to Kate, tax free due to her increased threshold. Kate has received £600,000 worth of assets which originally belonged to Kevin, and while her loss is certainly tragic, at least she’s saved £100,000 in tax.

Capital Gains Tax

Even when alive, transferring assets between spouses is tax-advantaged. Give your friend Kenneth a drawing worth a bomb and unless he actually pays the market value then you may have to pay tax on the difference. Here the standard rules apply, if a transaction’s happening, then HMRC are looking for their chunk.

Marry Kenneth first however, and the transfer can take place at no gain, no loss to either party. This may seem a lot of fuss for nothing much, but such transfers can be immensely valuable when paired with the annual exemption each individual has during a tax year.

Say Kathy has two pictures by the up and coming artist Vincent’s Van, each worth £10,000. If you want to be bored with the details, then meet me at a party or give me a call on the number below, but that’s up to £9,000 chargeable to CGT, around £2,500 payable to HMRC for selling two drawings!

If Kathy gives one to her husband Kenneth first however, they can each sell one below their annual exemption, and no-one pays any tax. Whether Kenneth will give the money back to Kathy is a trust issue that no tax man can help with.

Married Couple’s Allowance or: Why You Should Quit Tinder and Check out That WI Meeting down the Road

MCA could reduce your tax bill each year by between £322 and £835.50 just for being married or in a civil partnership and  living together, small contingency being that one or both of you must be born before 6th April 1935. The relief must be specially applied for, but we can take care of this for you no problem, so if you believe this applies to you, congratulations and give me a call.

To reiterate, were I to marry the incredible Judy Dench, then I’m entitled to at least £300 from the government (I’ll split it Judy, give me a call), and that’s before the Winter Fuel Allowance!

 

And Finally

As you can see this is a surprisingly rewarding section of the tax world, I’ve enjoyed researching it for my upcoming exam, so much so that revision had to stop while I shared this with you all. As with every area of tax, there are about a million associated technicalities and this article definitely does not constitute legally binding advice, but at Wisteria I work in a team of people who will happily sort any such issue for you. Check out the contact page if you want to get in touch, and feel free to email me if you think there’s anything interesting that I missed.