These days, more than at any time previously, U.K. couples consider the financial benefits – inclusive of the tax benefits – of getting married before anything else. It’s not just about love.
And, for sure, there are several tax perks to marriage in the U.K.
Nevertheless, there are, likewise, a few personal tax system inconsistencies, too.
Marriage in the United Kingdom comes with marriage allowance, in addition to certain advantages where capital gains tax (CGT) as well as inheritance tax (IHT) are concerned.
But, there’s a problem here.
The marriage allowance is currently worth peanuts.
Plus, when it comes to buying property, there are some tax disadvantages for married couples.
With respect to either buying or selling your property, it’s unlikely that you’ll enjoy any tax benefit if you are married.
As an example of this, where the Stamp Duty Land Tax (SDLT) is concerned, the SDLT stands at 3 percent.
For a married couple, they are considered as a single person.
As such, if either one of the couple owns another residential property, and they do not wish to purchase another property to replace the main one that is being sold, the couple would pay the higher SLDT cost.
And, where capital gains tax is concerned, a married couple in the United Kingdom can only own a single property.
Nevertheless, there are still a few tax benefits for a married couple. And here they are…
Tax Benefits of Marriage in the United Kingdom
1 Any transfer of assets does not attract capital gains tax
For any individual in the U.K., they can sell an asset for up to £11,300 in profit without having to pay any capital gains tax.
Prior to the sale, spouses as well as civil partners can freely transfer assets between one another and there’s zero tax liability.
This means zero capital gains tax liability on a total of up to £22,600.
Otherwise, assets can be transferred to the spouse or civil partner that incurs the least amount of capital gains tax charges.
In either event, a married couple can save, potentially so, many thousands of pounds.
It’s an option that is unavailable to couples that are not married.
2 There are no gifting rules for spouses
When it comes to inheritance, there are tax advantages for married couples.
As an example of this, if you decide to give either assets or money to someone (while you are still alive), those assets or that money can be classed a “potentially exempt transfer.”
In which case, if the gift occurs within a seven-year period of your death, the beneficiary of those assets and/ or money can be liable to the payment of inheritance tax.
Any gift made to a spouse or to a civil partner is inheritance-tax exempt, irrespective of when the gift is made.
3 Gains at time of death
For any assets that are valued up to £325,000 at the time of death, unmarried couples can pass those assets between one another free of inheritance tax.
Anything above the £325,000 threshold, and there’s a 40 percent charge for inheritance tax.
So, let’s say that a partner inherits a house that is very much in excess of the £325,000 tax threshold. They may have to sell up in order to pay the inheritance tax.
On the other hand, a deceased civil partner/ spouse can pass over an estate that is worth more than £325,000 – that is worth any amount – and there are zero immediate consequences where tax is concerned.
What’s more is that the surviving spouse can benefit from a tax inheritance nil-rate band to the tune of £650,000. Anything above this amount would be subject to inheritance tax.
For a main residence, however, with respect to the current 2019/2020 tax year, a home that is worth up to £950,000 can be passed between a married couple and between those that are in a civil partnership and inheritance tax can be avoided.
For anyone that is not married or in a civil partnership, there’s a tax exemption on a main residence of up to £475,000. Anything above attracts 40 percent inheritance tax.
4 Marriage allowance
Via the U.K. marriage allowance, married couples are currently able to save anything up to £230 in tax.
Thus, a spouse that earns anything below £11,500 in a year is able to transfer up to £1,150 of their own personal tax-free allowance over to their partner.
But this does not apply to tax payers in the higher bracket.
For a higher-earning spouse – one that earns above £45,000 annually (in Scotland, it’s £43,000 annually) – no transfer of personal tax-free allowance can be made.