Many financial advisers will claim that marriage is –
“The greatest tax planning strategy ever invented”.
This might not seem very romantic but is it true?
Inheritance Tax (IHT) is perhaps the biggest benefit. Unmarried couples can only pass assets to each other free of tax up the value of the “nil rate band” of IHT, which currently stands at £325,000 2019/20). If the total value of the assets owned by an individual, which will include their property, exceeds £325,000, the excess will be subject to tax at 40%.
If you are married or in a civil partnership then the transfers are exempt from inheritance tax. The surviving partner inherits the other party’s nil rate band. So, assuming no lifetime gifts have been made which have used up the nil rate band, asset totalling the value of £650,000 could pass to the children on the death of the surviving partner.
An additional nil rate band of £150,000 (2019/20) may also be available in relation to current or former residences.
So who is eligible for tax planning?
To be eligible the surviving spouse must have been married to the deceased at the time of the partners’ death. However, divorce will cancel this benefit. Remember that the nil rate band transfer is available to the estate of people who have been married more than once. During your lifetime various beneficial tax rules and allowances can also be used.
The eligibility of civil partners and married couples for a transferable tax allowance was introduced in April 2015. This enables couples to transfer a fixed amount of their personal allowance to their spouse or civil partner.
Any capital gains tax savings to be made?
Capital gains tax savings can also be made for married and civil partnership couples. The annual capital gains tax (CGT) exemption is available to each individual taxpayer. Transfers of financial assets can be made between couples without triggering a tax liability. A bill for capital gains could be avoided by taking advantage of both parties’ exemptions.
Also, when both exemptions have been utilised, a higher rate tax paying partner could transfer an asset to the standard rate tax paying partner. This would reduce the liability from 20% to 18 %. This is not possible for unmarried people living together.
How does being married affect my pension?
There are advantages for married couples regarding their pensions. In some situations, widows, widowers and surviving civil partners can inherit both the basic State Pension and the Second State Pension earned by their deceased partner if this is higher than their own. This facility is not available to unmarried couples.
Most occupational pension schemes do allow survivor benefits to be paid to non-married partners, but this is usually at the discretion of the trustees and subject to conditions. Recent court cases have made the pension companies look again at this area which is constantly changing.
What about bereavement allowance?
Bereavement allowance which is payable to recently widowed spouses and civil partners of men who die over the age of 45 but below state pension age is not available to women in unmarried relationships.
How can Anstee & Co help you with tax planning?
We are not recommending that you get married just to save some tax. Statistically, there is a far greater chance of divorce than death before retirement age. The costs of divorce could be far greater than any tax savings! The above is designed to give you an idea of the areas you need to consider when it comes to financial planning and tax planning.
Our Financial Planners will be able to advise you more when they know your full financial situation. Meetings can be arranged at a time and location convenient to you. To arrange an initial meeting, which is at our cost, why not contact us today.
- Kettering, Northamptonshire
- Stamford, Lincolnshire
- London, Pall Mall, Greater London
Also, our Financial Planners live and make use of meeting rooms in-
- Bedford, Bedfordshire
- Market Harborough, Leicestershire
- Northampton, Towcester, Wellingborough and Brackley in Northamptonshire.
Finally, the information contained in this article does not constitute advice. No action should be taken based on this information alone.