Tax breaks for tying the knot

Saving tax by itself might not be a good reason to get hitched, but there’s no point in missing out when you do. What tax planning moves should you be discussing with your intended?

Your tax rights

Key benefits. If you take a long hard look at what you get by way of tax rights from being married, most of them don’t apply until the point of divorce or death. It’s probably not the most reassuring thought if you’re contemplating walking up the aisle, but if we are talking cash, there are only limited tax benefits to being Mr & Mrs as opposed to Mr & Ms. However, these benefits can make a significant difference to any couple’s tax bill, which is one of the reasons why the creation of civil partnerships was seen as so important. So what are these key benefits and how can you take advantage of them?

First and foremost when you get married you don’t have to say “I do” to Inheritance Tax (IHT). Although IHT used to be something only the wealthy paid, decades of soaring house prices have changed all that.

Inheritance Tax

Recap. In the current tax year (2013/14) you have to pay IHT (or rather the person sorting out your affairs has to pay it out of your estate) if the property and investments etc. that you leave add up to more than £325,000.

This is somewhat of a simplification, because a whole industry has grown up around inventive ways of avoiding IHT. However, you don’t need to take out a clever policy; one easy way to beat the Taxman is to get married or enter into a civil partnership.

Tip 1. Your friends and relatives can make IHT-free gifts to either you or your spouse. The limits are £5,000 if the donor is a parent or £2,500 if the donor is a grandparent or great-grandparent. Otherwise, the limit is £1,000.

Tip 2. The marriage invalidates any will in place before the wedding - unless it was evidently written in contemplation of the wedding. So one of the first things you should do on your return from honeymoon is to make a new one. The mess left behind should you die intestate (without a valid will) cannot be over-emphasised, especially if you are the sole director of your company.

Tip 3. The existence of transferable nil-rate bands (the £325,000 threshold mentioned above) makes IHT planning between married couples easy. A simple will leaving everything to the surviving spouse can now avoid IHT on the first death and maximise the use of both nil-rate bands.

Horse and carriage

CGT. Another useful planning point if you are married or in a civil partnership, is that you can give assets to your spouse or civil partner and not pay Capital Gains Tax (CGT), no matter how valuable they are.

Tip. Don’t transfer assets between you until after you are married. You can reduce your CGT bill in two ways: by giving away assets to your spouse for them to sell or by owning them jointly. Either way, you are doing this to use up two lots of your annual allowance.

Warning. Bear in mind that if you give something away to your spouse or civil partner, you can’t ask for it back. You may save tax but if you split up, you could end up much worse off.

If you would like any further advice, please don't hesitate to contact us.

Tax breaks for tying the knot

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