Could you claim tax relief from your spouse?

Forget about roses, chocolates or attention, are you making the most of the tax benefits of being married?

The idea of marriage is something that is becoming increasingly unpopular. Marriage rates continue to decline as couples prefer to co-habit and forget the fancy ceremony, but is there a financial reason why more of us should be walking down the aisle?

Perhaps so…here our Wrotham Partner, Donna McCreadie summarises some of the tax benefits.

Marriage Allowance

This is a tax break that allows a husband, wife, or civil partner, to transfer £1,260 of their personal allowance to the higher earning partner. This could result in a tax saving of £252 per year and claims can be backdated up to four years if you’ve missed out previously.

You may be eligible if:
• You are married or in a civil partnership
• The lower earner has income below the Personal Allowance (£12,570)
• The higher earner has income between £12,571 and £50,270 (before receiving marriage allowance)

Income Tax

Often between partners, there is the flexibility to organise income in a tax efficient manner. For example, when running a business through a limited company and taking dividends. Both spouses should look to use their tax-free dividend allowance, as well as utilising both basic rates band, before paying higher dividends taxed at the higher rate.
If you jointly own buy-to-let property and one of you is a higher rate taxpayer, you could consider changing the ownership to Tenants in Common, so that more of the rental profit is taxed on the basic rate partner. However, if changing the ownership of the property in this way, don’t forget to submit an election to HMRC, otherwise the profits will still be taxed 50:50.

Capital Gains Tax Planning

When selling assets, it is worth considering a change in ownership prior to disposal, to reduce your capital gains tax liability. With a tax-free annual exemption of £6,000 for 2023/24 (reducing to £3,000 from 2024/25), it might be worth moving an asset from sole name into joint names prior to sale. As well as doubling the amount of gain which is tax-free, you might also reduce the liability further by dropping an element of the gain into a lower tax band. However, careful planning is required before making any changes, in particular where property is concerned.

Inheritance Tax

Every individual has a nil rate band for Inheritance Tax of £325,000, which is available to set against all assets within their estate on death. An additional residence nil rate band of £175,000 may also be available for those passing a qualifying residence worth £500,000 or more to a direct descendant. With mirror wills in place, a surviving spouse would take over the first spouse’s nil rate band on death, thereby delaying what could be a hefty inheritance tax bill and allowing more time to plan. Inheritance tax planning is however a complex area and one worth sitting down with a specialist to talk through in detail.