ICAEW reveal valentine’s tax benefits

It may not be the most romantic reason to propose but with valentine’s day just a few days away the ICAEW are highlighting the tax benefits of getting married or entering a civil partnership.

For example, as a wedding gift, each parent can give up to £5,000, and grandparents up to £2,500 to the newlyweds without facing any tax implications.

A newly married couple could also claim marriage allowance to reduce their income tax bill.

To qualify for this, the lower earner’s income must be below the personal allowance of £11,850 and neither partner should be a higher rate taxpayer. To also be eligible for the reduced income tax bill, a couple must not qualify for the married couple’s allowance.

The marriage allowance allows one partner to transfer up to 10 per cent of their personal allowance to their husband, wife or civil partner. If this was actioned in the 2018/19 tax year, it could reduce a couple’s tax liability by up to £238.

ICAEW highlights that marriage creates a fluid environment for capital gains tax (CGT) and inheritance tax (IHT), as it allows couples to pass ownership of assets between them free of CGT and IHT.

For example, if an individual sells an asset, they will pay CGT on any gain in excess of the annual exemption (£11,300). However, because both spouses have their own CGT exemption, a couple can realise gains of £22,600 before CGT is payable.

Even though the standard rate of IHT is 40 per cent on estates worth more than £325,000, an individual can pass on their estate to their spouse completely tax-free, regardless of the amount.

Moreover, when the last spouse passes away it is possible to pass on up to £650,000 to friends and family tax-free.

Sarah Ghaffari, ICAEW Technical Tax Manager, said: “If you are considering proposing anyway, these tempting tax exemptions could settle your doubts.”