Love, marriage . . . and taxes
PUBLISHED: 05:26 27 April 2015
People marry for love not money, but marriage can also benefit your financial situation, says Norwich chartered accountants Lovewell Blake.
The government proposes to introduce a transferable tax allowance for married couples and civil partners in April 2015. If a spouse or civil partner is not liable to tax because their income is below the tax free personal allowance they can elect to transfer £1,050 of their allowance to their spouse or civil partner. This is only available to basic rate taxpayers.
If your spouse has unused personal allowance or basic rate band, you may wish to consider an outright gift of income producing assets such as rental properties, or shares in your company. Gifts between spouses or civil partners living together in the tax year are normally made on a “no gain, no loss” basis.
Provided it is a genuine transaction with a salary commensurate to the duties required, you could employ your spouse or civil partner in your business. This is an allowable trading expense which, set at the right level, could make full use of any wasted tax-free allowances and possibly allow for a class one National Insurance credit for state pension purposes in later life.
Following the restriction in child benefit for higher earners, it makes sense to equalise income wherever possible if it protects entitlement to this tax-free benefit. Entitlement is available in full provided neither parent has income above £50,000.
A marriage or the registration of a civil partnership allows cash gifts to be made within the inheritance tax exemption of up to £5,000 from each parent or £2,500 from a grandparent or great grandparent. Any such gift must be made on or shortly before the ceremony.
Married couples and civil partners can inherit their deceased partner’s unused nil rate band for Inheritance Tax purposes, thus giving a total estate value of £650,000 before any liability arises. It is sensible to consider all options as early as possible to maximise available planning opportunities, tax rates and exemptions. Making or updating a will should be considered a matter of paramount importance.
Please be aware that there is an unlimited exemption for gifts between spouses domiciled in the UK. However, such gifts are limited to the donor’s nil rate band at that time if their spouse is not UK domiciled.
There are many ways for the happy couple to consolidate their finances and plan for the future. Great marriages work and so does great tax planning!
The above information was applicable at the time of writing and may be the subject of budgetary changes.
Please note that this article is provided for your information only. While every effort has been made to ensure its accuracy, information contained herein may not be comprehensive and you should not act upon it without seeking professional advice.