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Last Updated: Thursday, 6 April 2006, 10:43 GMT 11:43 UK
Would getting married save you tax?
By Chas Roy-Chowdhury
Head of Taxation, Association of Chartered Certified Accountants

Chas Roy-Chowdhury

If you are thinking of getting married do it for love, not for any tax benefit - you would have to really scratch your head to try and find any big tax advantages to being married.

The problem is that governments, of whichever party, decided many years ago that we should have all taxpayers treated separately for tax purposes.

Hence the principle which existed in the past, that the husband and wife were a single taxable entity, has been systematically dismantled.

Income tax

There is now no married couple's allowance unless the elder spouse was born before 6 April 1935.

While the government waxes lyrically in every Budget about taking care of the elderly, by making sure that they index up the married couple's allowance for the over-65s, the reality is that you have to be a long way past 65 to now receive it.

Unlike the personal allowance, which is a tax relief, and which you are entitled to offset the whole sum from your total tax bill upfront, the married couple's allowance works differently.

Income tax allowances
Personal allowance: 5,035
Personal allowance for people aged 65-74: 7,280
Personal allowance for people aged 75 and over: 7,420
Married couple's allowance - aged 75 or more: 10% of 6,135
Blind person's allowance: 1,660 plus main allowance
Tax year 2006/07

If you are entitled to it, you get 10% of 6,135 or 613.50 for those over 75.

These amounts are paid in addition to the enhanced personal allowances which are available for those over 65, but the number of people entitled to it are literally dying off.

The last remaining area where there is tax-favourable treatment for those who are married is in taxes on capital.

Capital Gains Tax

All individuals have an annual capital gains tax exemption of, currently, 8,800 (2006/2007 tax year).

However, for a married couple that is potentially doubled to 17,600.

The reason for this is that you can transfer assets which are subject to Capital Gains Tax between spouses completely tax free.

Thus, if you know that you are going to sell shares in the tax year which will generate a gain of 15,000, you could transfer to your spouse the shares which were likely to tip the gain over and above 8,800.

The same would be the case with a second property. You can make sure that you and your spouse shared the gain to take advantage of both annual exemptions.

Inheritance tax

The other capital tax where a husband and wife are treated favourably is Inheritance Tax (IHT).

If you are married, your partner doesn't pay IHT on your estate no matter how big.

Get married for any reason you want but do not let tax be one of them
Chas Roy-Chowdhury
In addition, both spouses are not taxed on the value of their estates up to 285,000 - the zero-rate allowance.

Hence they can transfer assets between them, as we have seen above, exempt from CGT to take advantage of their individual allowances.

If you are wealthy enough, then you might consider using the nil-rate band fully while you are alive, by gifting assets to your children, grandchildren or any other beneficiary you have in mind (but do take professional advice first).

These life time gifts are known as potentially exempt transfers (PETs).

The expectation is that you will survive for seven years after making the gift, and your nil-rate band will be fully available when you die.

And if you restricted the value of the PETs to 285,000 then you are likely not to attract tax in any case if you died before the seven-year exemption period was up.

Most people do not have much choice as to how they gift their assets across to their beneficiaries, since the main asset they have is their house.

Hence, while it sounds good that spouses can between them enjoy over half a million pounds of tax exemption, the reality invariably is that one spouse dies, leaving the whole house to the surviving spouse, thereby wasting their nil rate band completely.

Well there we are - as I said at the beginning, get married for any reason you want but do not let tax be one of them, as even the tax breaks which we have today may be gone tomorrow.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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