Making marriage pay on Valentine’s Day

Lynne Rowland

Lynne Rowland

Traditionally, Valentine’s Day is one of the most popular times for wedding proposals, but in this hard-headed age are there any worthwhile tax advantages in saying ‘yes’?

It might not be very romantic but making a long-term commitment to another person does have financial consequences.

You do not have to be cold-hearted to be hard-headed about the most important decisions in life.

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Previously, couples would tie the knot as soon after April 5 as possible to maximise the married couples’ allowance.

As co-habitation became usual, this relief became outdated and was eventually abolished.

But the gradual recognition that children thrive in more stable environments, led former Conservative prime minister David Cameron to re-introduce a marriage allowance.

Unfortunately, this has limited impact as it only provides up to £220 where neither spouse nor civil partner is a higher rate taxpayer and does not equally benefit co-habiting couples.

The re-introduction of this relief grabbed headlines, but the take-up is very low and does nothing to support marriage.

In an era where taxpayers need to be aware of complex tax rules and self-assess their liabilities, the days when couples were jointly assessed are long gone.

Independent taxation means that both people in a relationship must separately deal with their taxes – or do they?

Recent headlines concerning child benefit have highlighted that in order to meet HM Revenue & Customs requirements it is necessary for spouses and civil partners to know how much each earns to work out whether they breach income levels.

Similarly, to qualify for some Department for Work and Pensions benefits total household income is considered.

How does this encourage marriage or civil partnerships when it might be financially beneficial to remain single?  

On the plus side, once you are married or in a civil partnership moving assets between you is not a chargeable event and consequently tax planning is more accessible.

Then comes the sting: where both partners own property there can only be one capital gains tax-exempt property between them. If there are plans to let out or dispose of one property, it is important to be sure the returns are worthwhile.

Where there are plans to move the ownership of the main residence to minimise income and gains, it would be wise to ensure that transfer is made following the marriage or civil partnership.

For inheritance tax purposes, moving assets between spouses or civil partners during lifetime or on death should not trigger any tax charges. Any unused nil rate bands can be transferred to the other on death.

For most couples this means that where a home is included in their estate, which in total is less than £2m, by 2021 they will be able to leave up to £1m to their family tax free.  

Unless a will is made in contemplation of marriage or civil partnership, an existing will becomes invalid.