Perhaps you are thinking of taking the plunge and may propose to your significant other. Tax probably isn’t the deciding factor but there are tax benefits available to those who get hitched.  In this episode we will discuss the tax benefits surrounding marriage and civil partnerships. Enjoy.


Natasha 00:37

Hello, and welcome to Tax Able. Today’s episode is Should you put a ring on it? As you’ve guessed today, we’re talking about the tax benefits of getting hitched. Christmas has ended, but Valentine’s Day is fast approaching, so if you are looking to drop a few hints to your significant other, I suggest you put this episode on a speaker.


Natasha 00:56

We’ll be looking at marriage and civil partnerships. These are treated the same in tax law and I’ll be using the term spouse interchangeably for both. Did you know it’s a common misconception that couples who live together for an extended period of time acquire the same rights as those who are married? Unfortunately, this isn’t the case, so if you are thinking about taking the plunge, perhaps now is the time to do it.


Natasha 01:20

The first topic we’ll be looking at is Stamp Duty Land Tax, and I’ll be calling this SDLT. SDLT is chargeable when land or property is purchased in England. Commercial and residential properties each have different rates and these are on the. website. If you’ve ever bought your own home, you’ll know that SDLT is usually a significant cost and most begrudge paying it.


Natasha 01:44

When you buy a residential property, you’ll be subject to the normal residential rates and potentially something called the higher rate for additional dwellings. This is a bit of a mouthful, so we call it the 3% surcharge. It is called this because it adds an additional 3% to each banding.


Natasha 02:02

When working out a liability, this equals an additional 3% of the total purchase price. For example, if you’re buying a property worth 1 million, the 3% surcharge will add an additional £30,000 to your liability, so it’s not something to take lightly. There is an exemption available and it’s called the main resident replacement exemption. In simple terms, this means if you’re selling your current home and replacing it with another home, the 3% surcharge will not apply.


Natasha 02:33

But when we’re looking at two unmarried individuals who are looking to jointly buy a marital home, the surcharge can sometimes be triggered. The timing is key. Let’s look at an example, we have Tina and David. Tina owns her own flat and used to live in it and David owns his house. They currently live at David’s house and Tina’s flat is being rented out. They are looking to jointly buy a new home together to fund the purchase. They are going to either sell both or one of the properties.


Natasha 03:04

For this example, let’s just say that David’s property is being sold. If the new home completes before they’re married, the 3% surcharge will be triggered. This is because Tina hasn’t made a disposal of a main residence and her flat counts against her. Unfortunately, the 3% surcharge applied even though David has made a disposal. Essentially, Tina’s situation tainted their purchase. If the new home completes after they’re married, the 3% surcharge is not triggered. This is because Tina can rely on her spouse’s disposal. So for a property that’s being purchased for 1 million, that’s a £30,000 saving on their liability and £30,000 they can put towards renovating their new house or going on a holiday.


Natasha 00:49

Next we’re going to look at if you have an investment portfolio and by that I mean properties. You can look to change the ownership from single to joint ownership but a transfer will usually trigger SDLT. However, some of the liability can be mitigated as the 3% surcharge is not applicable when the transfer is made to a spouse. So happy days.


Natasha 04:09

The next tax we’ll look at is Capital Gains Tax. Capital gains are triggered when you dispose of Assets. But what do I mean by assets? We’re looking at properties, shares, crypto, art and other similar assets. A gain is calculated on the uplift in value. By this we mean the sales price minus any costs. There is a special exemption within the rules where a transfer is made to a spouse, so this means you can transfer properties or shares or art to your spouse and it will not trigger any capital gains tax. So that’s great.


Natasha 04:44

The next tax we’ll look at is Income Tax. There’s a special allowance called marriage allowance. This allows one person to give up 10% of their personal allowance to their partner. Now the personal allowance is £12,570 for this current tax year, so that means you can only transfer up to £1,257. Granted, that isn’t a lot of money, but considering the time we are in with COVID it has meant a lot of people are out of work or are earning less. Every little helps.


Natasha 05:16

For this allowance to apply. Both parties must be chargeable to tax at a basic rate. This means that both of you must be earning under £50,000. But ask your tax adviser if you think this should apply.


Natasha 05:29

Going back to investment portfolios. If you do have investment properties, you’ll receive rental income. Did you know that married couples are automatically treated as jointly owning properties? So if you do want to change the ownership, an election is required. And by this we mean you need to make a special election to HMRC. But why would you want to do this? Well, it’s actually quite useful if one partner isn’t working or is earning less and you can amend the interest in the property so they receive more of the rental income. The rental income will then be taxed at a lower rate. Even though the household income is the same, you’ll have more money in your pocket at the end of the day.


Natasha 06:05

Let’s look at an example we have Francis and Stuart. Francis is currently on paternity leave and Stuart has a full time job for which he has a higher earner. This means his income is taxed at a rate of 45%. He also has two investment properties for which he receives rental income. If nothing happens, the rental profits will be subject to tax at a rate of 45%. However, they have the option to elect so that, for example, 80% of the rental income is actually received by Francis, who is currently not working or receiving any other income.


Natasha 06:40

By doing this, they’re able to utilize Francis’ personal allowance and his basic rate tax band. Basic rate tax is at a rate of 20%, which is significantly lower than the 45% that Stuart would incur. This is definitely something you should consider if you have investment properties.


Natasha 06:55

The next tax we’re going to look at is Inheritance tax, and you’ve guessed it, there is a special spousal exemption. This means that your assets will automatically pass to your spouse, and this is important as it could prevent the sale of the family home in order to pay an unexpected inheritance tax bill. But what about if you’re too young to care about inheritance tax? Well, I do have a few tips which may help with your big day.


Natasha 07:22

Did you know an individual can give away a total of £3,000 worth of gifts each tax year without it being an issue for an inheritance tax? This is known as your annual exemption. In addition to this, each tax year, you can give a tax free gift to someone who is getting married or starting a civil partnership.


Natasha 07:40

The limits are £5,000 to a child, £2,500 to a grandchild or greatgrandchild or £1,000 to any other person. These are in addition to the annual exemption. So if you are looking for a little bit of extra money towards your big day, I suggest you remind your parents, grandparents, family friends about these tax efficient exemptions. As it may mean that you may end up with a little bit more in the pot.


*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please visit my disclaimers page. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


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