Traditionally the emphatic answer to this question was NO. But in recent years we have seen an increase in the number of long-term relationships without marriage or civil partnership, coupled with an increasing number of divorces and second relationships, all backed up by changes in the law that give increasing equality to such relationships. At the same time there has been little or no change to the structure of taxation and if anything parts of the tax code have moved to favour marriage. Add in the relentless increase in property prices, particularly in the South East, coupled with the freezing of Inheritance tax allowances.
What are the factors to consider?
Before looking at tax it is worth saying that most pension schemes now recognise long term relationships and do not require marriage. Similarly, the law of succession while not giving automatic rights to cohabitees does in fact offer considerable protection to anyone who has been in a relationship for more than two years. Slightly surprisingly some of these rights are stronger after death than during lifetime, but that is not a topic for discussion in this article. Although the law of succession does recognise cohabitees, the law of intestacy (that is the law dealing with people who do not have Wills) does not. Also, it is interesting to note that subject to a couple of very minor exceptions, income tax no longer gives special treatment to married couples.
However when we start to look at the Capital Taxes the situation changes dramatically.
Capital Gains tax.
Any disposal (this covers a sale, gift, sale under value and most cases of a swap) of an asset can give rise to a taxable gain. But if you make a disposal to your spouse there is no tax instead the spouse is simply treated as having acquired the item at the date you acquired it for the same price that you are considered to have paid. While this sounds eminently fair and reasonable it offers huge scope for tax planning.
Inheritance tax
All gifts to a spouse are tax free. In addition, a spouse inherits any unused Nil Rate Band. Recently we have also had the arrival of the Residence Nil Rate Band which means that in certain circumstances house owners can have an additional inheritance tax free allowance of up to £175,000 and if not used this allowance can be transferred to your spouse. The residence nil rate band can only be used to benefit your children or stepchildren (to benefit a stepchild can only be a stepchild in law, the child of a partner may to all intents and purposes be a stepchild but he or she is not a stepchild in law and therefore cannot benefit from the residence nil rate band of a cohabitee.)
It is clear from the above examples that as the law currently stands then for many people, particularly those living in the South East of England, there is a huge benefit to be obtained from being married. See the full article on our website.
If you would like to speak to a member of the Private Wealth Team about registration or setting up a trust please email: HCprivateclient@herrington-carmichael.com or Call 01276 686 222.
