Band of gold

Are you benefiting financially from your marital status?

Tying the knot does bring financial advantages. Tax and pensions are probably the least romantic reasons for getting married, but there are a number of ways to benefit from your marital status.

A lthough you can contribute whatever you wish into personal pensions, you can only receive tax relief on contributions up to the amount you earn each year, and subject to a maximum annual allowance of £50,000 (for the 2013/14 tax year). Any contributions exceeding the allowance will be taxed. If you want to contribute more than the annual allowance in a tax year, it’s worth considering splitting contributions between your pension and that of your spouse or registered civil partner.

For example, if you wanted to contribute £60,000 and receive tax relief on the whole amount, you could put £50,000 into your pension and £10,000 into your spouse’s, with both staying within the annual allowance limit. This is dependent on your partner’s earnings being higher than the amount you have paid in. Even if your partner has no income they can receive tax relief on contributions up to £3,600 gross each year. Also, remember that if your spouse is a basic-rate taxpayer, they will only receive tax relief at 20 per cent on the contribution.

Even if you earn a very substantial income, ISAs should not be ignored, since income from them is tax-efficient and you do not incur capital gains tax when you cash them in. This is especially true for couples, who each have their own allowance. This means that, between you, you could potentially invest up to £23,040 into Stocks & Shares ISAs, or split it up and invest up to half of that into Cash ISAs. Investing the maximum year-on-year over, say, a 20-year period would create a considerable tax-free sum.

One problem with ISAs for higher earners is that they can’t be gifted and they can’t be made subject to a trust. That means they remain in the investor’s estate for Inheritance Tax (IHT) purposes. The answer might be to continue using ISAs, and use some of the income to fund an appropriate life policy that can be held in an appropriate trust to cover the IHT liability. Alternatively, you could spend the ISA funds at retirement before buying an annuity or establishing drawdown of pension benefits, as these are more IHT-efficient up to age
75 should you die.

Transfer your onshore bond before surrender
Investment bonds provide a tax-efficient way of holding a range of investment funds in one place and aim to provide long-term capital growth. Income from investment bonds is deemed by HM Revenue & Customs to be net of basic-rate tax, although additional tax may be payable when the bond is encashed, in part or full.

If you are a higher-rate taxpayer and your spouse or registered civil partner is a lower-rate or non-taxpayer, you have the option to transfer the bond, or segments of the bond, to them. This means any future chargeable event on encashment is assessed on your partner, reducing the potential income tax liability on any gain realised. This is a complex area and you should obtain professional financial advice first.

Share your assets to reduce
Capital Gains Tax (CGT) and Inheritance Tax (IHT)
CGT is payable when you sell or transfer an asset, but transfers between spouses or civil partners are exempt. The CGT allowance lets you make a certain amount of gains each year before you pay tax. For the 2013/14 tax year, the allowance is £10,900. However, this allowance is per individual. So, by spreading assets such as your investment portfolio between you and your spouse or civil partner, you are effectively doubling the allowance to £21,800 before you pay CGT.

What’s more, the rate of CGT you pay is based on your income tax status, with basic-rate taxpayers paying 18 per cent and higher-rate taxpayers paying 28 per cent. So, holding assets in the name of the individual paying the lower rate of tax makes sense. In the same way, transfers of assets between spouses and civil partners are also exempt from IHT.

Any unused IHT nil rate band – the amount of your estate that is not subject to IHT (currently £325,000) – can be used by the surviving partner’s executors on their subsequent death.

Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.


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