Sunday 18 August 2019

You may not save a cent on tax when you marry - until death do you part

It’s not pretty, but the biggest savings married couples will probably see is when one of them dies
It’s not pretty, but the biggest savings married couples will probably see is when one of them dies
Louise McBride

Louise McBride

The taxman is hopefully the last thing on your mind when you're walking down the aisle - but if you're getting more excited about tax perks than marital bliss when exchanging your vows, think again.

Many couples who are married or in a civil partnership are no better off tax wise than they were when they were single - particularly when it comes to take-home pay.

Yes, married couples may have tax advantages over single individuals - as the unused tax allowances and credits of one spouse can usually be shared between both.

However, the amount of money earned by a working couple will ultimately determine whether or not they enjoy any more tax allowances when married than when single..

When each of you works and earns €33,800 or more, your take-home pay will be no better off after tax as a married couple than it is as an unmarried one, according to Billy Burke, head of employment tax services with KPMG.

This is because the income you each earn means you are already getting the full benefit of the standard rate tax band (which allows you to earn a certain amount of income before getting hit for the higher rate of tax).

Under the standard rate tax band, you pay 20pc tax on income up to a certain limit - but once you earn more than that, any balance over the limit is taxed at 40pc (the higher tax rate).

Single people can earn up to €33,800 before getting hit for the higher rate of tax (or up to €37,800 for single parents). A married couple however can earn up to €42,800 - where only one partner is working.

When both spouses are working, a married couple can earn up to €67,600 before the higher rate of tax kicks in. So if each spouse is working and earning €33,800 or more, each is already taking full advantage of the standard-rate tax band - which means there are no tax savings up for grabs.

Furthermore, when you both work and earn less than €33,800 each, you won't be any better off when it comes to tax.

This is because the main way you can save income tax as a working married couple is if you can reduce the amount of your income which is being hit for the higher rate of income tax. So, if neither of you is paying the higher rate of income tax, there is no point sharing any unused standard rate tax band - because there is no income taxed at the higher rate for that unused allowance to be used against.

"Where both spouses earn less than €33,800 each, being married is unlikely to make much difference from an income tax perspective," said Mr Burke.

Working couples could, however, save up to €1,800 in tax a year when they marry or enter a civil partnership - if they can take full advantage of the standard-rate tax band, according to Mr Burke.

To do that, one of you must earn at least €42,800; the other must earn €24,800 or less, according to Mr Burke.

"Individually, both spouses have 20pc income tax bands of €33,800," said Mr Burke. "It is possible for one spouse to transfer up to €9,000 of this band to the other spouse [if that spouse is not using up their full standard rate tax band].

"Where one spouse earns €42,800 or more and the other spouse earns not more than €24,800, the full transfer of €9,000 can be made. Effectively, this results in a tax saving of €1,800 for the couple."

It can also make sense to marry for tax if only one of you works. Parents who have chosen not to marry are losing out on tax credits should one of them decide to give up work and look after children in the home.

"If one spouse has no income, a married couple will benefit from the married tax credit, which is double the single tax credit of €1,650," said Mr Burke.

Another benefit which unmarried parents could lose out on is the home carer tax credit. This credit, which is worth €810 a year, is given to married couples or civil partners who are jointly assessed for tax where one person looks after a child in the home and that person's income is less than €5,080 a year.

However, a partner's PAYE tax credit cannot be shared with another partner because that credit is specific to each individual in a job. The same applies to tax allowances for employment expenses.

You could have to wait until your partner dies to save on tax - if there are no tax savings on your take-home pay as a married couple.

It is usually more tax efficient to transfer assets to a spouse - than to an unmarried partner.

"Inter-spousal transfers of assets are usually free of capital gains tax and gift/inheritance tax," said Mr Burke. "While this is very important, it becomes more so where one person dies."

Your spouse does not have to pay tax on any inheritance you leave to him or her - though a divorced or separated spouse may have to.

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