Tax benefits of marriage

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Here we look at some of the various tax credits and breaks married couples can benefit from and how it can pay to get married.

The Marriage Allowance | Inheritance Tax | Pay less Capital Gains Tax | Reduce Income Tax | Pensions

The Marriage Allowance

The Marriage Allowance can enable eligible married couples and civil partners to save up to £252 of tax per tax year. And, despite the marriage tax allowance being introduced almost ten years ago, many eligible couples are still missing out on this tax break.

The Marriage Allowance is designed to benefit couples where one spouse has insufficient income to make full use of their tax-free personal allowance (£12,570 for 2024/25). Where the couple meets the qualifying conditions, the spouse with the unused personal allowance can elect to transfer £1,260 of their allowance to their partner, offering a tax saving of up to £252 for 2024/25.

It is also possible to backdate the claim to 2020/21, to obtain an additional tax saving of up to £1,006. The deadline for claiming the marriage allowance for 2020/21 is 6 April 2025, so time is running out to claim it.

The transfer can only be made if the spouse who receives the transferred allowance is a basic rate taxpayer, meaning that for 2024/25 they would normally need to have an income of no more than £50,270 (or £43,662 if you are in Scotland).

Inheritance Tax

If you are married or in a civil partnership, then anything you leave to your partner upon your death is generally free of inheritance tax (though this does depend on your specific circumstances). Whereas bequests to others (and lifetime gifts made within seven years of death) are subject to inheritance tax if the value of your estate exceeds the nil rate band, which is currently set at £325,000 (and is frozen at this level until April 2028).

If your spouse or civil partner passes away you can also inherit their unused nil rate band (known as the transferable nil rate band), potentially allowing you to pass on up to £650,000 of assets to the next generation without paying inheritance tax.

In addition to this, you may also be entitled to the residence nil rate band of £175,000 per person, meaning that married couples/civil partners can potentially leave an estate worth £1million without paying inheritance tax. The residence nil rate band is available where the family home is inherited by direct descendants, i.e. children or grandchildren. ‘Downsizing’ provisions are also available where the original family home has been sold and replaced with a smaller property and assets of the equivalent value are passed to direct descendants. As with the nil rate band, any unused residence nil rate band can be transferred to the deceased’s spouse or civil partner’s estate (provided the relevant conditions are met). However, if the net estate has a value of over £2million, the residence nil rate band is tapered by £1 for every £2 over this threshold meaning that high value estates will not benefit from the residence nil rate band.

Pay less Capital Gains Tax

If an individual sells an asset (such as property or shares), they will pay capital gains tax on any gain in excess of the annual exemption, which is currently set at £3,000. However, as each individual has their own annual exemption, with careful planning assets can be transferred so that effectively a married couple/civil partner can realise gains of £6,000 before capital gains tax is payable.

Usually, when an asset is transferred from one owner, to another this can potentially trigger a capital gains tax liability however this does not apply when transferring ownership between spouses/civil partners. By transferring assets between spouses, it can be possible to make use of their basic rate band and their unused annual exemption. It is important that tax advice is sought prior to any asset transfer or sale as there are other tax considerations (i.e. stamp duty land tax) and there may be other reporting requirements.

Reduce Income Tax

If one spouse/civil partner pays income tax at a lower rate than the other, income producing assets can be transferred so that the lower-earning spouse is beneficially entitled to the income and therefore pays tax at a lower rate.  An example of this would be transferring the beneficial ownership of a joint rental property to the lower earning spouse. For business owners, shares in limited companies can be gifted to spouses so that dividends are taxed at a lower rate (though please note that this would need careful consideration in order to avoid the ‘settlements’ legislation).

Pensions

For married couples and civil partners who hold a final salary scheme, the surviving spouse will typically receive survivor benefits based on the final salary pension which has been built up by their partner, however, this does not necessarily apply to unmarried couples living together (i.e. ‘common law partners’). Each scheme sets its own rules and the wording of the particular scheme would need to be looked at to identify the potential beneficiaries. Some schemes stipulate that the pension benefits can only be paid to someone who is financially dependent, whereas others will allow you to nominate a partner.

If you would like further information on any of these areas outlined above, please do not hesitate to contact us.

More from our tax experts

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