Marriage & Taxation

Most of us marry for love and not for the tax savings, but for those who need that final incentive here’s a few thoughts for you.

Income tax
It always makes sense to invest any spare capital in the spouse’s name that pays the lowest rate of tax – you don’t have to be married to take advantage of this tip – you just have to trust your partner!

Also make the most of both partners ISA allowances of £7,200 every year. All income and capital gains from ISA investments are free of tax.

Capital Gains Tax
All individuals have an annual capital gains tax exemption of £9,600 (tax year 2008/2009). However, for a married couple that is potentially doubled to £19,200.

The reason for this is that you can transfer assets which are subject to Capital Gains Tax between spouses completely tax free. So if you know you are going to sell shares in a tax year which will generate a gain of say £15,000, you could transfer to your spouse part of the investment that was likely to tip the gain over and above £9,600.

The same would be the case with an investment property or second home. You can make sure that you and your spouse share the gain to take advantage of both annual exemptions.

Incidentally even if you do not own an investment in equal shares, tax law will still treat you and your spouse as sharing the income 50:50. You can elect to be taxed on your actual shares, but you need to complete a form and send it to HM Revenue & Customs.

Inheritance tax (IHT)
This is the other capital tax where a husband and wife are treated favourably. If you’re married, provided you pass your estate to each other on death, your partner will not pay IHT on their estate.

The first £312,000 of a deceased’s estate is free of IHT, but if this is not used (ie if all the estate passes to a spouse or charity) the allowance can be added to the spouses creating a £624,000 tax free allowance.

Remember if you’re co-habiting and haven’t made a will, your partner’s estate will pass to their next of kin, rather than you. This is particularly important to watch out for if you’ve got a mortgage and life insurance policies that aren’t in joint names.

Despite the advantages though, never forget that the tax breaks we have today, may be gone tomorrow.