Marriage and your money
Wedding planners will tell you that April and May are among their busiest months. The weather's better, the evenings are longer and – for those wishing to ensure a full house of guests – comparatively few take holidays at this time of the year.
Marriage and tax benefits
But go back a few or more decades and March was the major month for marriage. Why? It's a three letter word ending in X. Not sex but tax. Married people used to get a substantial income tax allowance and if they wed in March right at the end of the tax year, they received the full twelve months worth of benefit.
Assuming you have this trust, then moving savings from the higher taxed partner to the lower income spouse can cut tax bills significantly.
Now despite politicians talking of reintroducing tax breaks for married and civil partnership couples, the Married Couples Allowance only works when one or both partners were born before 6th April 1935, including newly-weds. It is complex but in essence, the allowance reduces a tax bill in cash terms by between £296 (for the highest incomes) to £770 a year (these figures rise to £304 and £791 respectively for the 2013-14 tax year starting on 6th April).
Even though the allowance now only applies to a very small number of couples, there are still a number of other tax bonuses available for the married – provided that you have savings or similar assets and, critically, the ability to trust each other with money. Civil partnerships and married couples can freely transfer assets between themselves despite still being taxed independently.
Assuming you have this trust, then moving savings – including ownership of shares – from the higher taxed partner to the lower income spouse can cut tax bills significantly. As an example, if a top rate taxpayer – currently 50% but falling to 45% from 6th April - gained £100 before tax in interest from a bank account, they would only end up with £50 (rising to £55 from 6th April). But if that person were to move those savings to a partner with a lower tax rate, then the household would be able keep more as the interest in the hands of the lower income individual would attract less tax.
Building on this foundation, if one partner has a lot of money and the other less, there is nothing to stop the better off moving money to their spouse so that they can also buy an ISA; at the current price of £11,280, up to half (£5,640) can go into a cash ISA. This will rise from the 6th of April up to a sum of £11,520 (with the cash ISA limit at £5,760).
The same free transfer principle applies to capital gains. Each person has an annual allowance – currently £10,600. By splitting an asset that will produce a gain on sale of £21,200 into two, you take the best advantage of both allowances. This could save up to £2,958 in cash terms, but the ownership needs to be divided before the sale, not after.
On a more sombre note, when one partner of a couple dies, the other automatically takes over their £325,000 inheritance tax allowance. This means that when the second dies, the first £650,000 of the estate is tax free.
Additionally, providing that the gift is made on or before the wedding day, parents can give their child (or step-child )up to £5,000 without any future inheritance tax worries. For grandparents, it is £2,500 and £1,000 for other relations and friends. These sums have remained unchanged since 1984. Normally however, someone making a gift has to live for at least seven years for it to be free of inheritance tax implications.
But being unwed can also have its advantages. If both of you own houses, then you have two properties which are free of capital gains tax if you were to sell one. Otherwise, married or civil partnership couples have three years after tying the knot in which to decide which is the capital gains tax main residence. They can also choose to sell the other tax free within that three year period.
Change for the better
So will “gay marriage” make any difference? Obviously, the answer is yes both for the personal emotions of the couples involved and how the wider world sees their relationship. But it will make no difference to the taxman. Every relevant tax law was rewritten to give equality to civil partnerships when they were first created eight years ago.
Terms, conditions, limitations, exclusions and eligibility criteria apply.
John Lewis Insurance is a trading name of John Lewis plc. Registered office: 171 Victoria Street, London SW1E 5NN. Registered in England (No. 233462). John Lewis plc is an appointed representative of Royal & Sun Alliance Insurance plc. John Lewis Wedding Insurance is underwritten by Royal & Sun Alliance Insurance plc (No. 93792). Registered in England and Wales at St. Mark's Court, Chart Way, Horsham, West Sussex, RH12 1XL. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 202323). Calls may be recorded and monitored.