Some taxing reasons to pop the question this Valentine’s Day

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Julia Grimes
Published: 10 Feb 2016 Updated: 03 May 2016

Some taxing reasons to pop the question this Valentine’s Day

Whilst most people tie the knot for love, marriage also affords considerable tax advantages. As St. Valentine’s Day is fast approaching and with it being a leap year, women are able to propose, David Smith, Director of Financial Planning for Tilney Bestinvest, ponders the more platonic advantages of Marriage.

What’s yours is mine...

“In reality, there may be very little difference in the day to day lives of married and cohabiting couples, but in the eyes of the state, 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 £10,600 p.a.) spouse can transfer £1,060 of their personal allowance to their other half. The higher earning spouse must only be earning between £10,601 and £42,385 p.a. but by utilising this allowance, could save up to £212 in tax this year. This is not permitted for cohabiting couples who are unmarried or who have not entered a civil partnership.

“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 £11,100 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 (CGT) allowance (2 x £11,100) or indeed they can be transferred in full to the spouse/civil partner who is expected to incur the lowest CGT charge. Either way, by splitting assets first, the couple could potentially save a considerable amount in tax, which may be particularly relevant for those considering the disposal of a buy-to-let property, for example. 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.

‘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 (IHT) 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 IHT 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.

“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 IHT. Alternatively however, gifts amongst spouses / civil partners are not Potentially Exempt Transfers and ignored for IHT 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. Provided death occurred after 3rd December 2014, 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 considerable income being lost. It is imperative therefore that the exact terminology of the spouse’s pension is determined before death.

“One thing is for certain; if marriage or civil partnership remains off the cards, adequate planning needs to be carried out to protect legacies and provide for the surviving partner in the event of death. For example, if there is no Will in place at the point of death, the rules of intestacy do not provide for partners in any way whatsoever; it is therefore an absolute necessity that an up to date Will is put in place.

“Ultimately, a marriage or civil partnership should not be entered into lightly, but if love and a commitment to life-long companionship are already there, maybe there’s a little more incentive to pop the question this Valentine’s Day?”

- ENDS -

Important Information

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested.

This article is not advice to invest or to use our services. If you are in doubt as to the suitability of an investment please contact one of our advisers.

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.

Please note we do not provide tax advice.

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About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs over 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

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This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.