A wedding can be very expensive, with the average cost in the UK now standing at £27,161. Some tax issues become significant at this happy time and couples need to understand how rules will affect them as they enter married life.
Avoid inheritance tax
Wedding presents may be given without liability for inheritance tax. Each year, £3,000 can be given to a loved one tax-free; however, if you die within seven years, a larger amount will incur inheritance tax. Weddings allow you to add to the £3,000 allowance: parents can give up to £5,000, grandparents up to £2,500, and other relatives and friends up to £1,000. The money has to be given before the wedding and the ceremony has to take place.
Capital gains tax
Capital gains tax (CGT) affects couples that own their own home. CGT is due when you sell an ‘asset’. Your home is exempt, but you will pay tax on any other properties. A couple that has two properties from when they were single needs to decide which will continue to be exempt from CGT – you have two years from the date of your marriage or civil partnership to notify HMRC. It is possible that your property has been let, which has ramifications. Talk to a financial planner, who may use financial adviser software to find out which reliefs and allowances you may be eligible for.
If you are a basic rate taxpayer, the CGT rate for residential properties is 18 per cent, or 28 per cent if you are a higher rate taxpayer. Financial adviser software can be useful for the associated calculations.
The marriage allowance
Married couples can save up to £238 every tax year by a non-taxpayer transferring £1,190 of their personal allowance to their partner. You must be married or in a civil partnership, one of the couple must have an income of £11,850 or less, and the higher-earning person must earn between £11,851 and £46,350. According to HMRC, many eligible couples have failed to take up this allowance; again, financial adviser software can provide useful information.
Coordinating your tax affairs
Discussions around tax issues are important in the long term when you share life as a couple. With careful planning, you should be able to enjoy a long and prosperous life together.