In the UK, marriage not only symbolises a personal commitment but it also provides financial benefits, such as potential tax reductions, helping couples save money and simplify their financial planning.
I first heard about it during my Indian marriage photography when one of my colleagues asked me – “have you thought about marriage allowance?” and I had no idea what that was all about.
That’s when I decided to read more about it, because who doesn’t want to save some tax?
So later we were able to utilise the benefits when my husband and I were both working part-time. He was earning less than me so he was able to transfer some of his tax-free allowance to me so I paid less tax.
What is Marriage Allowance?
Marriage allowance was set up a few years ago. It allows people who are married or in a civil partnership to transfer some of their personal allowance to their partner. Your personal allowance is the amount of money you can earn before you start paying income tax.
If one person in the marriage is earning less than the other, they are able to transfer some of the difference over to the partner and end up paying less tax.
How to Calculate Marriage Allowance?
You can also use this free government tool to easily calculate your marriage allowance – https://www.gov.uk/calculate-married-couples-allowance
Eligibility for Marriage Allowance
To be eligible for Marriage Allowance, you must be married or in a civil partnership. Simply cohabiting, regardless of duration, does not qualify.
Key requirements include:
- One partner must be a non-taxpayer, meaning their income is below £12,570.
- The other partner should be a basic-rate taxpayer.
- Both partners must have been born after April 6, 1935.
- Up to £1,257 of the personal allowance can be transferred to the higher-earning partner.
- This can reduce the higher earner’s tax by up to £252 annually.
Please Note: Marriage Allowance allows a lower-earning partner to transfer up to £1,260 of their tax allowance, potentially saving the couple £252 annually.
Inheritance Tax (IHT) Benefits
Married couples can transfer assets between each other tax-free. This means the surviving spouse can inherit property without incurring Inheritance Tax (IHT). Additionally, couples can combine their IHT allowances, doubling the tax-free threshold for their heirs.
Capital Gains Tax (CGT) Exemptions
Asset transfers between spouses are generally CGT-exempt, providing tax-efficient options in financial planning. For example, investments can be shifted to a lower-earning partner for added tax savings. This exemption lets married couples organize their assets flexibly, keeping more capital within the family.
Pension Benefits
If the earning partner passes away, pensions often provide financial security for the surviving spouse. Many pension schemes offer spousal benefits, providing regular payments or a lump sum to the surviving partner. Typically, defined pensions offer 50-66% of the total amount to the survivor. Additionally, pensions can be inherited tax-free if the original holder passes before age 75, offering a stable retirement income.
Tax-Free ISA Transfers
If one partner passes away, the other can inherit their ISA allowances tax-free. ISAs offer tax-free interest, gains, and dividends. The surviving partner can retain these tax benefits, preserving their savings’ value.
Income Splitting
A married couple can reduce their tax bill by income-splitting if one partner has a lower tax rate. Assets like rental income, savings, or dividends can be allocated to the lower-earning partner, maximizing basic-rate tax benefits. Self-employment or side business income can also be declared under the lower-taxed partner, creating a more balanced household tax burden.
First-Time Buyer Discounts
Married couples pooling resources as first-time buyers may benefit from significant stamp duty relief, making homeownership more accessible. As of 2024, first-time buyers can receive relief on property values up to £625,000. Combining resources also allows for a larger down payment, potentially reducing mortgage costs.
How to Apply for Marriage Allowance?
It’s a very simple process and you can do it online. If you visit the same government website linked above, it will take you to a form where you will need to fill in some information to prove your identity.
Final Thoughts
Marriage can be a powerful financial tool in the UK, offering tax savings and advantageous financial arrangements that support a couple’s quality of life. If you or your friends are getting married in the UK soon, all the very best! Don’t forget to check out our Indian wedding photography services because we have a team of one of the best Asian wedding photographers in the UK.
