Tuesday, April 26, 2011 | Posted by: Naomi Smith
Categories: Personal, Protecting your wealth | Tags: tax, property, capital gains tax, inheritance tax, CGT, income tax, pensions, IHT, retirement, transfer, partnership, marriage, Naomi Smith, shares, assets, personal allowance, spouse, transferable allowances, advantages, Married Couple’s Allowance
Marriage isn’t just for romantics. There are all sorts of financial gains, tax reliefs, benefits, exemptions and other advantages to be had when you sign on the dotted line.
Romantics all over the nation are eagerly anticipating the royal wedding of Prince William and Kate Middleton this week. Imagine the scene: the glorious designer dress, the horse and carriage, the ceremony at Westminster Abbey…
In the excitement of planning the big day, few people consider the financial benefits of matrimony but there are many tax savings for married couples and registered civil partners.
1. No gain/no loss transfers between spouses for capital gains tax (CGT) purposes. That means you can gift or sell assets between spouses without a capital gains tax charge.
2. Two annual exemptions means a spouse with an asset standing at a capital gain can transfer part ownership of the asset to the other spouse just prior to the sale, so that £21,200 is exempt from CGT rather than the usual £10,600.
3. For spouses wanting to use up their annual capital gains tax exemptions, one tax planning example is for the husband to sell his shares one day, give the cash to his wife, and she buys them back the next day. This uses up the husband’s annual exemption, while still holding the same shares, thus reducing the taxable gain when the shares are finally sold later on (assuming that the shares are sold at sufficient gain).
4. If you are not entitled to a full state pension, you may be able to increase it if your spouse or civil partner has qualifying years of National Insurance.
5. The Married Couple’s Allowance is available for all those lucky enough to born before 6 April 1935. The allowance is worth up to £7,295 per couple, with tax relief being given at 10%.
6. Transfers between spouses during life and on death are exempt from inheritance tax (IHT) (subject to a limit of £55,000 if the recipient spouse is not UK domiciled). Now imagine that – if you can stay married continuously ‘til death do us part’, then that is the ultimate inheritance tax plan.
7. A spouse can leave their unused IHT nil rate band to the surviving spouse on death.
8. Spouses can work together to distribute investment income between each other so that they use up unused income tax personal allowances (£7,475 each in 2011-12) and lower rate income tax bands (the first £35,000 of income above the personal allowance).
9. Spouses can transfer investment bonds to each other and make use of their partner’s lower tax rates.
10. Profits from the family business can be split between spouses to use up the lower tax bands – but watch out on this one, as the taxman doesn’t like anything that can’t be commercially justified.
11. If you own shares in a company, consider giving a few shares to the spouse with the lower income. When dividends are paid they will use up their lower tax rates.
12. Wedding gifts can be exempt from inheritance tax, too. The amount of the exemption varies from £1,000 to £5,000 depending on the relationship between the transferor and the parties to the marriage or civil partnership.
I must say that two is better than one. Two income tax personal allowances, two ISA allowances, two pension allowances, two basic rate income tax bands, two annual capital gains tax allowances, two inheritance tax annual exemptions, two inheritance tax lifetime nil rate bands.
And yes, I’ve calculated that the long-term tax savings of marriage will pay for the wedding. So let’s wish Wills and Kate the best of luck.
And if you’re already happily married, I’ll leave you to cash in on the tax savings.
Image: © Dennis & Aimee Jonez
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