Spring is made for lovers, and traditionally also the peak time for lovers to make it official through marriage or a civil partnership.
But there is more to consider than just the urgings of the heart. There are also some important tax reasons that could leave you better off as a couple.
1. Marriage allowance tax breaks
If one partner in the couple is not earning at all or earns less than £12,570, they are not using their tax-free personal allowance. They can transfer 10% of it – £1,260 – to their spouse.
Assuming the spouse is a basic-rate taxpayer earning less than £50,270, their personal allowance is then boosted to £13,830, meaning they can keep more of their earnings. As a couple, this would cut your tax bills to leave you better off by up to £252 for the financial year.
2. Increased capital gains allowances
One member of a couple can transfer assets to each other without incurring a tax bill, which can save on capital gains tax.
This could be a good idea if one is a higher-rate taxpayer, but their spouse does not pay tax or is in a lower tax band. As capital gains tax liability varies depending on your tax band, it makes sense to transfer assets to the lower earner.
When time comes to sell or dispose of the assets, the person with the lower tax rate will pay 18% on any profits exceeding their tax-free allowance, versus 24% if they were left with the higher earning spouse.
3. Make the most of savings
You might also want to organise your savings to keep the taxman away. Cash savings outside of an ISA are subject to income tax, but there is a tax-free personal savings allowance. This allows you to receive up to £1000 in interest tax free if you are basic rate taxpayer, but only on the first £500 if you are a higher rate payer, while top rate payers get no allowance at all.
Transferring your savings to the partner in the lowest tax band could potentially save you £1000 a year as a couple.
4. Extra pension
If you are in a final salary pension scheme, you can usually have some form of your pension paid out to your spouse when you die. You may need to check your policy to ensure that your surviving spouse is classified as a dependent. You may be able to arrange payment to a partner if you are not married or in a civil partnership, but it may be simpler if you are.
5. Inheritance tax advantages
If you’re married or in a civil partnership, you can transfer assets to your spouse on death without having to pay any inheritance tax. This is known as the “spousal exemption”, and there are effectively no limits on what you can leave your loved one.
There is also an exemption from the Government’s inheritance tax raid on private pensions, announced in October’s Budget, which will begin in 2027.
6. Passing on an ISA
Anyone whose spouse or civil partner has died with an ISA can benefit from the “Additional Permitted Subscription” (APS) allowance. This means they can receive a one-off ISA allowance equal to the total value of the ISA holdings - also known as the inherited Isa allowance. It means that ISA savings and investments can be passed on and retain their all-important tax efficient status.
Financial planning for couples
If you are going to tie the knot, it makes sense to take a look at your finances as a couple. Insurance protection, your pension and your long-time financial objectives may all change, and consideration should be given to factoring in the impact of tax allowances into your long-term plans.
You may have other things on your mind, but looking at your money as a couple is part of preparing for a future together.
For help with that, call us at Continuum.
Marriage Allowance: How it works - GOV.UK
How to manage additional permitted subscriptions - GOV.UK
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Savings, Pension or investment strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate deposit accounts, taxation and trust advice or will writing.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. We recommend that the investor seeks professional advice on personal taxation matters.
The value of an investment can go down as well as up. When investing Capital is at risk.
