While not particularly romantic, we are often asked “Is marriage beneficial from a tax point of view? Most tax benefit rules do not recognise cohabitation; the focus tends to be on single or married people.
From 2002-2015 the proportion of adults cohabiting rose by a third from 7.5% to 10%. The rate for those aged 65-69 increased from 1.5% to 4.5% and for those over 70 it rose from 0.7% to 2.3%. This would indicate that people over pension age are the fastest growing group of cohabitees.
For income tax purposes there are two allowances available to married couples. The original married couple’s allowance applies where at least one member of the couple was born before 6 April 1935. This allowance can be worth up to £844 per tax year. The new marriage allowance which was introduced in April 2015 is available to couples of any age. This benefit is worth up to £230 a year where the associated conditions are met. If a couple qualifies for both allowances, they must choose one. Generally, the original married couple’s allowance tends to be more beneficial.
For capital gains tax (CGT) purposes transfers of assets can be made between husband and wife at a deemed no gain/no loss. This enables couples to equalise their assets for inheritance tax (IHT) or income tax purposes with no CGT consequence.
On death, an individual can leave their estate to their surviving spouse free of (IHT). They can also transfer any unused proportion of their IHT nil-rate band to their spouse. From April 2017 any unused proportion of the new residence nil-rate band is also available for transfer. None of these options are available to cohabiting partners.
Under the former state pension system (for individuals reaching state pension age pre 6 April 2016) there were extensive rights for surviving spouses, generally resulting in an improved state pension following the death of one spouse. Again, this does not apply to cohabiting couples.
In summary, there are still some tax benefits associated with being married. However, we wonder in the future, if the government will begin to develop a tax system, which recognises the diversity of the people it looks to assess.
Please do get in touch, if you would like to discuss any of these points further.