It’s obviously a very expensive time; the price of the outfits, the venue, the cake… it all adds up. The average cost in the UK today sits at £27, 161*. And while that isn’t anywhere close to tipping the scale against a ‘royal wedding’, the financial ramifications are still significant.
But aside from the party bill, there are other financial things to consider. Things that definitely matter, but can often be forgotten about until it’s too late… like tax!
Understanding how tax rules could come into play can really make a difference to a couple on their big day and as they enter into a married life – and a heads up could be one of the most valuable gifts you can give them.
Tax breaks on gifts
Talking of giving valuable gifts, weddings present a unique opportunity to give to the people you love without also giving them a potential Inheritance Tax (IHT) liability further down the line.
There are well-established rules around sharing your wealth with the people you care about, without worrying about paying tax on it. Every year you can give £3,000 to someone tax-free. You can give larger amounts without paying tax directly, however if you were to die within seven years of making a larger gift, it would be added back into your estate for the purposes of working out IHT and the person you gave the money to could then be left with a tax bill.
Weddings give you the opportunity to give an extra gift on top of the annual £3,000 allowance, and apply to non-cash gifts too. However the amount depends on your relationship:
- If you’re a parent, you can give up to £5,000
- If you’re a grandparent, you can give up to £2,500
- Other relatives and friends, can give up to £1,000
There are also a few extra qualifying factors to consider; the money has to be given before the wedding and the wedding has to actually take place. With this in mind it can often be a good idea to keep a record of any big ‘gifts’ that you give or get. Things like who you received it from, how much they gave, when they gave it to you, and so on. With standard inheritance tax at 40%, it can quite literally pay to be savvy with gifting.
Capital Gains Tax – what newly married couples should know
Aside from tangible or monetary gifts, a heads up on how Capital Gains Tax (CGT) affects couples who each own their own home could be a very valuable present.
CGT is due when you make a profit from the sale of an ‘asset’. Your home is exempt due to something called Private Residence Relief. However this doesn’t cover any other properties, so you would have to pay tax on any money gained from the sale of those.
This raises an important consideration for new couples: if each person owned their own home before they got together, they now have to make a decision about which property will continue to be exempt from CGT.
Thankfully, HMRC does allow time to sort out ‘overlaps’. Married couples or civil partners have two years from the date of their marriage to tell HMRC which property will become their main residence. There may also be other relief based on the amount of time it was someone’s home before marriage, and if the property has been let out, so it’s worth talking to your financial planner to make the best use of any reliefs and allowances that are available.
Capital Gains Tax rates for residential properties are 18% if you’re a basic rate tax payer or 28% if you’re a higher rate tax payer. This could be a significant proportion of the profit on your property on top of any other costs associated with selling a home, so it’s a very important consideration. It also throws up another opportunity for married couples – as they share tax allowances and reliefs, it may be possible to manoeuvre things so that tax is charged at the couples’ lowest available rate of tax e.g. 18% instead of 28%. However there are other things to be considered here – for example any costs associated with changing the legal ownership of a property may outweigh any tax savings.
The “Marriage Allowance”
This tax break saves married couples up to £238 each tax year, by allowing a non-taxpayer to transfer £1,190 of their Personal Allowance to their partner.
There are three separate sets of criteria that you have to meet in order to benefit from the Marriage Allowance:
- Firstly, you must be married or in a civil partnership.
- Secondly, one person in the relationship must have an income of £11,850 or less
- Thirdly, the higher-earning-half of the couple must earn between £11,851 and £46,350 (£43,430 in Scotland).
The Marriage Allowance can be claimed online; however statistics from HMRC last year showed that millions of eligible couples are missing out on the extra money. Although the amount isn’t particularly large, it could still make a difference in the long run so if you know a couple who are eligible it might be worth mentioning it.
Tax planning as a couple
Looking at tax as a couple is not just important for the first few years of marriage or in preparation of the big day. There are also many longer-term advantages that come from planning your finances with your partner. We’ve gone into some of the strategies to consider in our previous blog “Financial planning for couples”. Please feel free to send it on to anyone you think might benefit.
If you have any questions about anything covered in this blog, or would like to discuss the most effective method of tax planning for you, your 1825 Financial Planner will be happy to help. You can also post a question below.
If you’ve yet to find a financial planner and you would like to find out more about how we can help, please get in touch.
*Source: The Independent
Laws and tax rules may change in the future. The information here is based on our understanding in June 2018. Personal circumstances also have an impact on tax treatment. The information in this blog should not be regarded as financial advice.