Marriage is a beautiful union that can bring joy and happiness into your life – along with some great tax benefits!
This article will tell you everything you need to know about how marriage can reduce your tax bill, whether you’re about to tie the knot or happily married but not taking advantage of the tax-saving benefits.
How Can Marriage Reduce Your Tax Bill?
When you get married, you have the opportunity to trim your tax bill and save money. Getting hitched won’t automatically give you a discount on all taxes, but it will save you money on certain types like capital gains and inheritance tax.
Marriage can Reduce your Capital Gains Tax
The government allows spouses to transfer assets between themselves without any tax implications. This means that couples can reduce the amount of capital gains tax they pay.
For example, if Ben is a high-earner and in the upper tax bracket, then he can transfer assets to his wife who pays tax at the basic rate. This means that the income from that asset is taxed at the lower rate instead of the higher rate. It also means that any capital gain when the asset is sold will be taxed at the lower rate. There are many other ways to reduce the amount of capital gains tax you pay.
Marriage can Reduce your Inheritance Gains Tax
The standard inheritance tax rate is 40% and you are charged on any part of your estate that is above the £325,000 threshold. This means you would pay 40% tax on £175,000 if your partner died and left you £500,000, which essentially means you will lose £70,000 in tax.
However, spouses are exempt from inheritance tax so you would pay no tax if you were married or in a civil partnership at the time of their death. In addition, any unused threshold can be added to your threshold when you die. This means that your family will pay less tax on any money they inherit after you die.
Marriage can Reduce your Income Tax
Another perk of being married is that you can share your tax-free personal allowance. Marriage Allowance lets you transfer £1,260 of your personal allowance to your husband, wife or civil partner. This could save you up to £252 a year in taxes.
Married Couple’s Allowance is another tax benefit that could reduce your tax bill by between £353 and £912.50 a year according to GOV.UK.
You can claim Married Couple’s Allowance if the following apply:
- You are married or in a civil partnership.
- You are living with your spouse or civil partner.
- One of you was born before 6 April 1935.
Marriage ensures Pension Continues after Death
When your husband or wife dies in the UK, you may be entitled to receive part or all of their pension. If someone dies and they are unmarried, then their pension stops being paid at the time of their death.
Whereas, if someone is married, then their spouse could receive their deceased partner’s pension income for the rest of their life. This gives people peace of mind knowing that their spouse will continue to receive an income after they die.
What Needs to be Done?
Claim to Reduce Income Tax
You should always check whether you can claim Married Couple’s Allowance. It only takes a few minutes to do online and it could save you hundreds of pounds every year. If you have only just realised then don’t worry! You can backdate your application for up to three years and save even more money.
Transfer Assets to Reduce Capital Gains Tax
If you or your spouse pays a higher tax rate, then you could save a signficant amount of tax by transferring assets between you to take advantage of reduced capital gains tax.
Get Ready for Inheritance Tax
If your estate is valued higher than £325,000, then you might want to consider getting married so that your partner does not have to pay 40% tax on anything they inherit above this threshold.
Learn more with Prosperity Wealth
At Prosperity Wealth, we have many years of experience providing independent financial advice on pensions, investment, inheritance tax planning, mortgages and insurance. We can assist with all aspects of financial planning and help you build and maintain wealth.
Get in touch with our experts if you would like to discuss your finances and ways to reduce your tax bill.