Marriage has never been more unpopular. Couples in the UK are shunning married life in greater numbers than ever.
However, married couples gain several financial advantages over unmarried couples, particularly tax benefits related to Inheritance Tax (IHT) and Capital Gains Tax (CGT). So what estate planning advantages exist for married people?
Inheritance Tax (IHT)
Inheritance Tax provides specific exemptions for married couples. When one spouse dies, any assets left to the surviving spouse are generally exempt from IHT. This means that couples can transfer their wealth between each other without incurring tax liabilities, which can be a considerable advantage for wealth management and estate planning.
As of 2024, the standard IHT threshold is £325,000 per person. However, married couples can combine their thresholds, potentially allowing up to £650,000 to be passed on tax-free if both partners have died. This is particularly relevant when considering the family home, which can also benefit from the Residence Nil Rate Band (RNRB). If the couple leaves their main residence to direct descendants, an additional allowance of up to £175,000 per person can be claimed, significantly increasing the tax-free allowance available to married couples who are then in a position to claim an extra £350,000 in addition to the married threshold of £650,000.
For example, if a married couple owns a home valued at £500,000 and has no other significant assets, they can potentially pass on their entire estate to their children without incurring any IHT.
Capital Gains Tax (CGT)
Capital Gains Tax also offers advantages for married couples. CGT is charged on the profit when an asset is sold or disposed of, and for married couples, transfers of assets between spouses are exempt from CGT. This means that if one partner owns an asset that has appreciated in value, they can transfer it to their spouse without triggering a CGT event. The receiving spouse can then sell the asset, potentially using their own annual exempt amount (£3,000 for 2024/25) and any unused part of the CGT annual exemption from the transferor.
Furthermore, if the couple later sells the asset, they can take advantage of their combined tax allowances, which can lead to significant tax savings. This provision encourages couples to manage their investments and assets jointly, allowing for more strategic financial planning.
For example, consider a couple who jointly own shares in a business. If one spouse has a higher gain on their shares, transferring some to the other spouse could use both partners’ annual exemptions, effectively reducing the overall CGT liability when the assets are eventually sold.
Some Other Considerations
While the aforementioned tax benefits are substantial, it’s essential for couples to consider their overall financial situation, including pensions, investments and property. Planning for the long term can ensure that couples maximise their tax advantages while also reaching their financial goals.
It’s also important to note that tax laws can change. A new budget is planned for 30th October and estate planning advice may then change as a result. Regular reviews of one’s financial situation with experts are advisable to adapt to any new regulations that may affect tax liabilities.
Need more information?
Four Oaks Legal Services regularly engages in tax and estate planning discussions with clients, often in conjunction with financial advisors and accountants.
We are in the ideal position to assist you with any estate planning issues. If you need more guidance and assistance with estate planning, get in touch.