Tying the knot can help you maximise your allowances

WHEN it comes to tax, we don’t often have a lot to cheer about. That is unless you have tied the knot, since married couples and civil partners have some juicy advantages. Planning in advance, and seeking expert advice, can prove an efficient way of maximising your joint tax allowances.

INVESTMENT INCOME
The income tax tax-free allowance currently stands at £8,105 (increasing to £9,440 in April) for anyone earning under £100,000 per annum. This allowance can only be used once – if your salary exceeds this, there aren’t any additional tax advantages to gaining part of your income from investment.

Given that basic rate taxpayers pay 10 per cent tax on dividend income, as opposed to the 32.5 per cent for higher rate taxpayers, Mark Smithson of Grant Thornton says that “it can makes sense to transfer some income to a lower rate taxpayer” if one partner earns less than the other. To take advantage, shares must be put in your partner’s name.

With property assets, however, it is not necessary to transfer the whole asset. You could gift a share of the property to your spouse, and they can draw the rental income. This will be subject to income tax.

But there are anti-avoidance provisions built into asset transfers, and HMRC is cracking down on avoidance. So it is wise to consult a wealth planner to structure your affairs properly.

CAPITAL GAINS
Investors have a £10,600 annual tax exemption on any capital gains. Anything above this is subject to capital gains tax at a rate of 28 per cent for higher rate taxpayers, and 18 per cent for lower rate taxpayers.

If gains exceed the exemption amount, you might consider transferring ownership of the asset to your lower tax-paying spouse. The transfer itself would not be subject to capital gains tax. But your spouse would also have to pay capital gains tax when the asset is sold, albeit at a lower rate. This can save you money, especially when selling shares, given that equity portfolios can easily be split.

INHERITANCE TAX
Inheritance planning is one of the fundamental pillars of wealth management. If your spouse dies, property transferred to the surviving married partner isn’t currently subject to inheritance tax.

But you are also allowed to inherit your spouse’s nil-rate band. If you were going to pass on any property assets of a value up to £650,000, the beneficiary would not pay inheritance tax on the total. Unmarried individuals only have a £325,000 nil rate band.

NUPTIAL AGREEMENTS
Family lawyer Ayesha Vardag says that a pre or post-nuptial agreement is essential for joint wealth planning, adding that it is “lunatic” not to have one in place. Periods of change – like a new job, or the birth of a child – are good time to set the process in motion. It is about “agreeing in the best times what would happen in the worst”.

To be enforceable, any agreement must be fair. Although fairness is a difficult concept to qualify, courts interpret it as the ability to meet your spouse’s basic needs.

Without an nuptial agreement, a court decides the outcome, which can be unpredictable. And courts give little to credence to who the breadwinner is, since marriage is viewed as a partnership.