Getting married or entering a civil partnership is a big emotional and relational commitment (congratulations if you have tied the knot or are about to!).
It also heavily influences your tax position and strategy as new tax rules and allowances suddenly become relevant to you and your spouse/partner.
Below, our Teesside financial planners explain some of the key tax information such couples need to know. Please note that some of this information is not relevant to couples not in a marriage or civil partnership, even if you have lived together for a long time and have had children together.
We hope these insights are helpful. Please contact us for more information or to speak with a financial adviser:
t: 01228 210 137`
e: [email protected]
The Marriage Allowance
Each UK taxpayer is entitled to a £12,570 tax-free Personal Allowance in 2024-25 (i.e. you can earn up to this amount without paying income tax). However, what if one person in a marriage or civil partnership is not working, or earns below this threshold?
Here, this person can “transfer” some of their Personal Allowance to the other spouse/partner (provided they are a basic rate taxpayer and both of you were born after 6 April 1935).
This is called the Marriage Allowance, and it allows £1,257 of the first person’s Personal Allowance to the second person. Each year, this can save up to £252 in tax. To apply for this on the HMRC website, you will need your National Insurance (NI) numbers and proof of ID.
You can backdate tax refund claims for up to four tax years, allowing a couple to potentially save up to £1,008.
Pension contributions
Currently in 2024-25, each UK taxpayer can claim tax relief on their pension contributions (e.g. to a workplace scheme). This is equivalent to your highest marginal rate of income tax.
For instance, a basic rate taxpayer gets 20% tax relief. A higher rate taxpayer gets 40% tax relief (by contacting HMRC or via their Self-Assessment tax return).
These tax benefits are available up to each individual’s Annual Allowance, which is set at £60,000 per year (or 100% of the taxpayer’s relevant earnings – whichever is lower).
If someone is not working, they can still contribute up to £2,880 per year to their pension(s) and claim tax relief – increasing it to £3,600 by the government.
If someone has maximised (or will maximise) their contributions for the tax year, they could contribute to someone else’s pension on their behalf. This does not have to be a spouse/civil partner so anyone can take advantage of this relief.
This can maximise tax relief for the entire household and lower their State Pension dependency. Moreover, if each person has their own pension savings, it can provide greater flexibility in retirement in meeting any income needs. It can also simplify things later when one person dies or if there is a separation/divorce.
Capital Gains Tax
Two tax years ago, each UK taxpayer could “dispose of” assets and realise tax-free capital gains up to £12,300 in a single tax year. This is called the Annual Exempt Amount.
Over the last two tax years, this capital gains tax (CGT) allowance has gradually reduced to £6,000 (in 2023-24) and now £3,000 (2024-25).
However, married couples and civil partnerships are still at an advantage because the spouses/partners can transfer assets between them without immediately incurring a CGT liability.
So, suppose one person in a couple has maximised their £3,000 Annual Exempt Amount in 2024-25. They want to dispose of another £3,000 worth of shares.
Doing so independently would incur a CGT charge (since the shares are held outside a pension or ISA). However, by transferring the shares to their spouse, they could then sell the shares and realise the capital gains without tax (assuming they has retained their full allowance).
Or, suppose both individuals have fully used their Annual Exempt Amounts. One person is a higher rate taxpayer and the other person does not work.
In this case, transferring shares to the latter person would allow the couple to realise capital gains at a lower rate (10%) than if the former disposed of them (20%).
Inheritance tax
When you pass away, your estate may be subject to inheritance tax (IHT). In 2024-25, an estate is exempt from IHT if its total value falls under £325,000 (the “nil rate band”). Otherwise, a 40% rate usually applies to the value of the estate above this allowance.
However, if you are married or in a civil partnership, your spouse/partner can inherit your full estate with any IHT liability.
You both also “combine” your nil rate bands when you both die, to pass down up to £650,000 to your beneficiaries without paying IHT. This can be “extended” to £1m if you leave your family home to “direct descendants” (the “residence nil rate band”).
Invitation
Here, we have touched upon some of the key areas of tax planning within a marriage or civil partnership. However, there is far more we could cover!
If you would like to discuss your financial plan and investment strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.