Valentine’s day; finding the tax relief in romance

With Valentine’s day just days away now, everyone is trying to find ways to be romantic during lockdown – without being able to go out for a meal. The morning TV programs are full of stories of new relationships forming during this time (or so my wife tells me), and if you speak to a midwife they will tell you they are a lot busier than normal for this time of year. But away from the romance side of things, there is a more serious side to consider with new relationships and growing families – the financial implications! Whilst the tax benefits of being married or in a civil partnership are never a good reason to take a relationship to that stage, they are still worth being aware of.

Tax Allowances

Firstly, looking at getting married or entering a civil partnership:

• The “Married Couples Allowance” can save a couple tax of up to £907.50 a year, however new claims for this are very rare, as one of you must have been born before 6 April 1935.
• For couple born after this date, you may be able to claim the “Marriage Allowance.” If one partner earns less than the tax-free personal allowance (currently £12,500), and the other earns less than the higher rate threshold (currently £50,000), there may be scope to transfer 10% of this allowance, saving tax of up to £250 a year.
• If you are disposing of an asset where capital gains tax will be due, it may be beneficial to transfer it into joint names before the sale (as long as you are married or have entered into civil partnership at that point), so that you both benefit from the £12,000 annual exemption, but be aware there may be costs involved and it may affect reliefs you are entitled to.

Inheritance Tax

It is not just the couple getting married that can benefit from a tax break though, there are special rules for inheritance tax on wedding gifts. These gifts are exempt from inheritance tax, and do not require you to survive 7 years.

• For a child, you can give them a gift worth up to £5,000.
• For a grandchild or great-grandchild, the gift can be worth up to £2,500.
• For any other relative or a friend, the gift can be worth up to £1,000.
• This is on top of your £3,000 per year gift allowance, and any gifts under £250.

For this gift to be effective, it must be given before (not after) the wedding and the wedding actually has to go ahead!   As I said before, none of the above are a good reason to get married or enter a civil partnership, but we want to make sure you don’t miss out on any reliefs you are entitled to. Good tax planning always looks at the wider picture. If you would like to find out any more about the reliefs above and how they could be useful to you, check out our year end tax planning guide or contact your usual Haines Watts adviser.