What it means when you hear about the tax advantages of marriage

Posted on July 26, 2017

The number of unmarried cohabiting couples more than doubled in the 20 years between 1996 and 2006, from 1.5 million to 3.2 million. As a divorced financial adviser I know just what the tax issues surrounding marriages are.

Recent research found that 35% of a sample of over 1,000 cohabiting couples either assumed that they had the same rights as married couples or those in civil partnerships, or were unaware of the tax consequences of their unmarried status.

Probably the least significant tax benefit of marriage is the marriage allowance. This enables one spouse to transfer to the other one tenth of the benefit of their personal allowance (£1,150 in 2017/18).

The tax saving is 20% of the allowance, i.e. £230. To qualify, the transferor must be a basic rate taxpayer with income between £11,500 and £45,000 and the recipient should of course be a taxpayer.

When it comes to capital gains tax, each spouse is taxed separately and there is no CGT on transfers between them. So there may be scope to transfer an investment which includes gains.

However, capital gains tax will be payable on the sale of a second home by a married couple, with a top rate of 28%. Unmarrieds, on the other hand, can each have a ‘principal private residence’ which is exempt from CGT.

In addition, the purchase of a second home by a married couple will attract the 3% additional stamp duty levy on second homes which applies to purchases in excess of £40,000. This would not apply to unmarried couples each buying one property.

The biggest tax advantage of marriage relates to inheritance tax, and this factor alone lies behind the marriages of many cohabiting couples.

Transfers between spouses who are domiciled in the UK are free of inheritance tax, whereas for unmarried couples, tax would be payable at 40% on the value of an estate over £325,000.

Of course the hidden cost of marriage is divorce when it does happen, but maybe that’s when you need a good financial adviser and solicitor!!

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.