Who knew marriage could be so financially rewarding?
In the dance of matrimony, not only do hearts intertwine, but so do financial perks.
Dive in as we unravel the tax secrets every married couple should know.
(Read Time: Approx. 3 minutes)
- The 1990 Shift and how tax legislation for married couples evolved, offering them individual taxation benefits.
- Marriage Allowances and Perks, including ISA allowances, tax-free transfers, interest benefits, and pension advantages for those united in matrimony.
A Trip Down Memory Lane: The 1990 Tax Evolution
Venturing back in time provides us with insights that often highlight how far we’ve come.
Case in point: 1990.
Just a year after income tax saw a dip to 40%, Nigel Lawson, who was a member of the Prime Minister’s cabinet as the Financial Secretary to the Treasury, took the initiative to introduce a crucial change.
Husbands and wives would now be able to choose to be taxed separately, rather than as a singular entity.
This legislative shift was a significant boon for couples who had dual incomes.
Previously, when their incomes were merged, they found themselves in the higher tax bracket.
Now, with individual taxation, many were only subject to the basic rate.
Yet, in the hustle and bustle of modern life, a multitude of couples may be overlooking the financial benefits that marriage can offer, especially in the realm of taxation.
Here’s a comprehensive look at these perks:
The Marriage Allowance
For couples where one partner’s income doesn’t exceed the personal allowance of £12,570, and the other partner’s income falls between £12,570 and £50,270, there’s an opportunity for some tax magic.
The lower earner can transfer up to 10% of their tax-free personal allowance – that’s
£1,260 – to the partner earning more, resulting in a potential tax saving of £252 annually.
Furthermore, this provision can be backdated for up to four years, potentially providing a total tax relief of up to £1,242.
The ISA Allowance
Marriage doesn’t just bond two souls, it also fuses their ISA allowances, offering a combined annual total of £40,000.
This provision creates an avenue for significant long-term savings.
One of the hidden gems of matrimonial finance lies in the realm of asset transfer.
Married couples and those in civil partnerships can shift assets between themselves without triggering any tax implications.
For those higher earners with assets like rental properties or share portfolios, transferring some or all of these assets to a lower-earning partner can effectively reduce the overall income tax bill.
The Joy of Tax-free Interest
Savvy savers, take note: If one half of a married couple doesn’t pay tax, they could receive interest on savings up to £5,000 (in addition to their £12,570 personal allowance) without incurring any tax liability.
The current capital gain allowance stands at £6,000.
For those looking to capitalise on this, consider selling assets to utilise this allowance.
Then, you could potentially re-purchase the same assets in your partner’s name within the tax-free envelope of an ISA.
Immediate CGT savings on the sum at a 20% rate would equate to £1200.
Additionally, any subsequent growth on that asset would also remain protected.
Let’s not forget the pension front.
If your spouse passes away, you may be entitled to their state pension, depending on their level of National Insurance contributions.
In addition, if you’re named on their Private Pension’s as the beneficiary, you will be entitled to that upon their passing.
Take note to update the beneficiary named in the event of a divorce.
While Mrs Patrick Campbell whimsically remarked that “Wedlock is the deep, deep peace of the double bed after the hurly burly of the chaise lounge,” it’s evident that beyond the emotional and companionship aspects, marriage also presents an array of financial benefits worth considering.
If you’re looking for some clarification on these benefits, get in touch with the Tax Expert today, and find out how you can levy your marriage to your financial benefit.
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