Tax advantages of marriage

The number of unmarried cohabiting couples more than doubled in the 20 years between 1996 and 2006, from 1.5 million to 3.2 million.

However, research commissioned by law firm Mills & Reeve found that 35% of a sample of over 1,000 cohabiting couples either assumed that they had the same rights as married couples or those in civil partnerships or were unaware of the tax consequences of their unmarried status.

Probably the least significant tax benefit of marriage is the marriage allowance. This enables one spouse to transfer to the other one tenth of the benefit of their personal allowance (£1,150 in 2017/18).

The tax saving is 20% of the allowance, i.e. £230. To qualify, the transferor must be a basic rate taxpayer with income between £11,500 and £45,000 and the recipient should of course be a taxpayer.

When it comes to capital gains tax, each spouse is taxed separately and there is no CGT on transfers between them. So there may be scope to transfer an investment which is pregnant with gains to the spouse with an unused allowance.

However, capital gains tax will be payable on the sale of a second home by a married couple, with a top rate of 28%. Unmarrieds, on the other hand, can each have a ‘principal private residence’ which is exempt from CGT.

In addition, the purchase of a second home by a married couple will attract the 3% additional stamp duty levy on second homes which applies to purchases in excess of £40,000. This would not apply to unmarried couples each buying one property.

The biggest tax advantage of marriage relates to inheritance tax, and this factor alone lies behind the marriages of many cohabiting couples.

Transfers between spouses who are domiciled in the UK are free of inheritance tax, whereas for unmarried couples, tax would be payable at 40% on the value of an estate over £325,000.

Of course, the main downside of marriage is the cost of divorce!

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Tax advantages of marriage

The number of unmarried cohabiting couples more than doubled in the 20 years between 1996 and 2006, from 1.5 million to 3.2 million.

However, research commissioned by law firm Mills & Reeve found that 35% of a sample of over 1,000 cohabiting couples either assumed that they had the same rights as married couples or those in civil partnerships or were unaware of the tax consequences of their unmarried status.

Probably the least significant tax benefit of marriage is the marriage allowance. This enables one spouse to transfer to the other one tenth of the benefit of their personal allowance (£1,150 in 2017/18).

The tax saving is 20% of the allowance, i.e. £230. To qualify, the transferor must be a basic rate taxpayer with income between £11,500 and £45,000 and the recipient should of course be a taxpayer.

When it comes to capital gains tax, each spouse is taxed separately and there is no CGT on transfers between them. So there may be scope to transfer an investment which is pregnant with gains to the spouse with an unused allowance.

However, capital gains tax will be payable on the sale of a second home by a married couple, with a top rate of 28%. Unmarrieds, on the other hand, can each have a ‘principal private residence’ which is exempt from CGT.

In addition, the purchase of a second home by a married couple will attract the 3% additional stamp duty levy on second homes which applies to purchases in excess of £40,000. This would not apply to unmarried couples each buying one property.

The biggest tax advantage of marriage relates to inheritance tax, and this factor alone lies behind the marriages of many cohabiting couples.

Transfers between spouses who are domiciled in the UK are free of inheritance tax, whereas for unmarried couples, tax would be payable at 40% on the value of an estate over £325,000.

Of course, the main downside of marriage is the cost of divorce!