Royal Romance: Some taxing reasons Prince Harry may have popped the question

Prince Harry has today announced his engagement to Meghan Markle, with a likely wedding date to be announced for Spring 2018. When Harry does tie the knot, he and his new wife will be able to benefit from a number of UK tax reliefs. Whilst most people tie the knot for love, marriage also affords considerable tax advantages. Gary Smith, Financial Planner at Tilney, ponders the more platonic advantages of Marriage

What’s yours is mine…

“In the eyes of the government, only those who are married or in a civil partnership are viewed as one part of a whole for tax purposes, with the ability to share their allowances.

“In 2015, the Government introduced a ‘marriage allowance’ whereby a low earning (below £11,500 p.a.) spouse can transfer £1,150 of their personal allowance to their other half. The higher earning spouse must only be earning between £11,501 and £45,000 p.a. but by utilising this allowance, could save up to £230 in tax this year. This ability to transfer allowances would be lost on divorce and is not available to cohabiting couples.

“Married couples and civil partners have a further tax benefit when it comes to selling assets. Ordinarily an individual selling an asset for a profit can realise up to £11,300 in gains in the tax year before a tax charge becomes due. Before the sale however, assets can be transferred freely between spouses/ civil partners – with no liability to tax – in order to utilise the extent of their combined Capital Gains Tax allowance (2 x £11,300) or indeed they can be transferred in full to the spouse/civil partner who is expected to incur the lowest Capital Gains Tax charge. Either way, by splitting assets first, the couple could potentially save £000’s in tax. This option is not available to unmarried couples, as movement of assets between couples is a disposal for capital gains purposes and would negate the benefits of this exercise. This allowance could prove very useful to Harry and his new bride, should he choose to dispose of an asset post marriage.

‘Til death do us part

“The tax benefits of Marriage are not solely confined to the couple’s lifetimes. In fact, perhaps the biggest financial gain comes in the event of death. Whereas assets valued above £325,000 passed between cohabiting couples on death may be subject to Inheritance Tax of 40% on the excess, a deceased spouse / civil partner can pass an estate of any worth to the surviving spouse without immediate tax consequences. Furthermore, any unused Inheritance Tax nil rate band by the deceased can be passed to his / her beloved for their use in the future; creating a potential nil rate band of £650,000 for the survivor. This has recently increased further, with the introduction of the new ‘residence nil rate band’, resulting in a potential additional combined £200,000 allowance for married couples. Whilst the ‘residence nil rate band’ will be a welcome benefit to the masses, given that this allowance will be lost once assets exceed £2.5m, it is debatable as to whether Harry and his new bride will benefit at all.

“Extending this point, if an individual gifts capital / assets to another individual during their lifetime it may be classed as a Potentially Exempt Transfer and, should death occur within seven years from the date of the gift, the beneficiary may be liable to Inheritance Tax. Alternatively, however, gifts amongst spouses / civil partners are not Potentially Exempt Transfers and ignored for Inheritance Tax purposes.

“Understanding too that only very rarely, are income and savings split equally between spouses / civil partners throughout lifetimes, the Government now allow a surviving spouse to effectively inherit the ISA savings of their deceased partner and maintain their tax-efficient ISA status. Although the ISA status ends on death, the survivor is afforded an increased allowance equal to the value of their late husband’s / wife’s / civil partner’s ISA value which they could ‘top up’ with the value passed to them on death. Indeed, this is not permitted between any other individuals.

“One aspect, which is often overlooked, is the dependant’s pension within occupational pension schemes. On death of a pension member, the scheme will often provide a ‘spouse’s pension’ typically equating to around 50% of the originally quoted income for the deceased. The term of ‘spouse’ however, is often strictly adhered to, and unless the couple in question were married at point of death, the surviving partner may not receive anything, potentially resulting in £000’s in income being lost. It is imperative therefore that the exact terminology of the spouse’s pension is determined before death.”

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