With Valentine’s Day we thought our February spotlight should focus on aspects of love and relationships for those who are married, might be getting married or just happy being single.
Moving in together
Will you be leaving a property? What are the tax implications of selling it property or could you rent it out? Ceasing claiming single persons reduction in council tax, switching mortgages to a buy to let are but a few things to consider. There have been two main changes to the taxation of property income in recent years, the withdrawal of lettings relief (the additional relief available when you let a property that you used to live in) and the withdrawal of higher rate mortgage interest relief. If you are letting a property you should be aware of the changes and the impact in your circumstances.
Getting Married
Advantages
Spouses can transfer property between them without a capital gains tax charge. This enables tax planning to redistribute income between spouses to optimise their tax bands and allowances to have a lower overall tax cost.
The transition of this can also be potentially beneficial as can be seen by the example.
Pre-Marriage planning
Mr A holds and investment, he paid £50,000 for it 5 years ago but it is now worth just £10,000 but he has hopes that it will be worth more in the future so doesn’t want to sell it, but has sold his property to move in with the future Mrs A. Mr A gives the investment to the soon to be Mrs A. This gives rise to a loss of £40,000 which Mr A can use to set against other gains he has made in that tax year. If the transfer was made after they became married the shares would have transferred to Mrs A at a base cost of £50,000 and no loss would have been created by Mr A.
For inheritance tax purposes any transfers between spouses are free from inheritance tax. Any unused nil rate band which is the amount can be transferred to others on your death tax free (currently £325,000) unused on the first spouses death can be carried over to the second spouse meaning potentially the second spouse could pass £650,000 of wealth to the beneficiaries of their estate without paying tax (additional amounts may also be passed using the new residential nil rate band).
Disadvantages
Marriage invalidates a will, so if you get married you should consider redrafting your will to reduce the possibilities of your estate being distributed by virtue of the intestacy rules.
You should however be careful of switching property into joint names once you are married if mortgages are involved.
Marriage Allowance
Introduced in April 2015 Marriage Allowance is one of the most under claimed allowance or relief which could improve the tax position for some couples by around £250 per year.
Marriage Stamp Duty warning
Mr A & Mrs A owned properties individually before they met and got married. Mr A lets out his property and has moved in with Mrs A.
They re-mortgage the family home, but because it is owned wholly by Mrs A the mortgage advisor tells them they need it to be in joint names to use joint income (outstanding mortgage £200,000)
Mrs A would be deemed to transfer 50% of the mortgage to Mr A which is therefore £100,000 x 3% = £3,000 Stamp Duty
If you would like to know more about whether this applies for you please let us know.
If you are married, engaged or thinking of popping the question and would like to know whether you are claiming everything that you could please contact us on 01473659777 or email mandy@beatons.co.uk to arrange a meeting.