Putting The Romance Back In Tax
14th February 2019
You’re probably wondering why we’re talking about romance in a RIFT Refunds blog. What could Valentine’s Day possibly have to do with tax? Well, the surprising answer is – very little, but not nothing! Suppose you drew a Venn diagram with everything to do with love in one circle and everything to do with tax in another. You’d have to get close and squint at it a bit, but there’s definitely a thin sliver of overlap there. In fact, as it turns out, that tiny intersection could actually be worth quite a bit of cash.
The financial upside of walking the aisle comes from several different sections of the tax rules. Perhaps the most obvious one is the Marriage Allowance – even if not many people seem to get the benefit from it. Back in 2015, the government introduced a mechanism that allows married people to shift part of their tax-free Personal Allowance to their spouses. Using the current figures for 2018/19, the amount you can transfer is £1,190.
Of course, to get any benefit out of this, the person doing the transferring needs to have some unused Personal Allowance to give. That means they need to be earning under £11,850 (again, using the figures for 2018/19). If there are, then sliding the maximum allowed portion over to their partner lands them a tax reduction of £238 per year. The system works for civil partners, too – and you can backdate your claim to the year it started so you don’t miss out. The person getting the extra allowance does need to be in the basic rate tax bracket, but if you qualify you’re only cheating yourself by not claiming.
Another easily missed benefit of getting hitched is in the Capital Gains Tax system. This is a large and clunky area of tax law, and a lot of people get tangled up in it. Basically, though, it’s a tax on the profits when you sell or give away something that’s worth more than when you bought it. Everybody gets a Capital Gains Tax allowance (£11,700 as of 2018/19), below which they don’t have to pay. On top of that, you don’t pay the tax when you give or sell things to a spouse or civil partner. By transferring partial or total ownership of an “asset” before selling it on, you can potentially save thousands of pounds by making use of both partners’ allowances. The rules around Capital Gains Tax can be tricky, though, so make sure you talk to RIFT to get the most from the system.
Just to ruin the romantic mood for a moment, it’s important to understand that the tax benefits of tying the knot don’t end when life does. In fact, the Inheritance Tax rules feature one of the biggest benefits of all. In general, there’s a threshold of £325,000 (as of 2018/19) on Inheritance Tax. Anything under that is completely safe from the taxman. However, even once you’re over that threshold, you still don’t have to pay Inheritance Tax on anything left to you by a spouse or civil partner. Given that the standard rate of Inheritance Tax for the 2018/19 tax year stands at 40%, it’s well worth putting some thought into. Putting a ring on it now could mean pushing up your partner’s income when the time comes, instead of just daisies.
Of course, marriage is a big commitment, and not one you should just blindly plunge into for money. In fact, so-called “romance fraud” is becoming a pretty big business these days. The stats for 2017 show that people in the UK lost an unbelievable £41 million to fraudsters posing as highly eligible marriage prospects that year. The way the tax rules work almost make a marriage sound like a financial investment –and that’s fine, up to a point. Like any other business deal, though, it pays to know who you’re getting in bed with.
So, in the spirit of Valentine’s Day, RIFT wishes you all the joy that love can bring. Buy chocolates, whisper sweet nothings and remember that even the taxman’s cold, cold heart can melt. That's what tax rebates are for!