Should we get married?
Believe it or not this is a question I have personally been asked by couples on a few occasions.
Once during an annual review with a client couple who had lived together unmarried for 25 years and brought up three adult sons, the wife asked me “Should we get married?”, I answered that for tax reasons alone it was worth getting married especially after having been together for so long. I was mainly discussing the advantages for Inheritance Tax purposes.
To my complete astonishment during an annual review meeting with the very same client couple 2 years later the wife told me they were married and it was because of the tax advice I had given them 2 years earlier! The reason I was surprised was because there were no visible signs of their marriage. Their names were unchanged and there were no wedding rings. They had merely got married in a Registry Office and pretty much kept it to themselves. Strange but true.
From a taxation perspective there are indisputably a number of advantages in being married.
For example each spouse has an Inheritance Tax, IHT, exemption of £325,000 known as the Lifetime Allowance. In addition to this each spouse receives the Residence Nil Rate Band, RNRB, worth £150,000 each, rising to £175,000 each from 6 April 2020 subject to qualifying conditions. Both allowances are transferable to the surviving spouse on the death of the first one. This means combined IHT exemptions of £1 million. Unmarried couples cannot transfer their allowances to each other on death. So a combined taxable estate worth a £1 million could result in an IHT saving of £200,000 for a married couple compared to an unmarried couple.
Spouses may also make gifts to one another not only free of Inheritance Tax but also Capital Gains Tax, CGT. This is of course very useful tax planning. Gifts for CGT purposes do not trigger an immediate CGT liability. The donee spouse inherits the cost history of the donor spouse. In other words the donee is deemed to have acquired the gifted asset at the same time and at the same cost as the donor spouse. One advantage of doing this is that the donee spouse can use his/her CGT exemption of £12,000 meaning two exemptions can be used in the same tax year. Furthermore if the donor spouse is a higher rate taxpayer and the donee spouse is a basic rate taxpayer, Capital Gains Tax May be paid at the lower rate of 10% rather than 20%.
There are Income Tax planning opportunities for married couples too. If one spouse works and the other one doesn’t then there are often ways in which assets and income can be transferred from the tax paying spouse to the non-tax paying spouse. This can result in the non-tax paying spouse using their otherwise unused personal tax allowance of £12,500. Furthermore, the same spouse could potentially use up his/her basic rate tax band so that income is taxed at 20% instead of 40% or even 45%.
So from a purely tax perspective there are multiple advantages in getting married. Whether there are other more qualitative reasons for getting married I will leave that for you to decide.
In the meantime if you would like advice on tax efficient planning for pensions and investments why not get in touch? You know it makes sense.