My long-term partner and I have finally got our lazy backsides into gear and decided to get married this summer. So on the one hand, yay, I’ve got an excuse to throw a party, but on the other, hmm, I’m anxious about what impact this will have on our finances.
Not that I’m worried about the cost of the wedding, as we’ve found a venue that is only slightly more expensive than a scout hut and I’m thinking of cutting the catering bill by telling the guests to eat before they come. However, I am concerned that once we’re married we’ll have to pay more tax on our rental income.
This is because when a couple own rental property as partners, rather than as man and wife, they have greater flexibility in how they divide their income for tax purposes.
My partner and I own all three of our properties 50:50, but most years I take the lion’s share of the rental income because I’m the lower-rate taxpayer. I’ve checked with several tax advisers and this is a perfectly legitimate way for couples who aren’t married to reduce the amount of tax they pay.
Arthur Weller, a property tax specialist from TaxInsider.co.uk, part of the Landlord Syndicate, told me that to be on the safe side, the couple should have a written agreement stating how the income will be split, dated before the start of the tax year. They should also ensure that the rent is paid into the partners’ bank accounts in the proportions stated in the agreement, so in my case I have received 90 per cent of the tenants’ rent.
One tax adviser told me that it would be “advisable” for a couple to decide on a split and stick to it, rather than to regularly switch their share of the income simply to save tax, but one accountant told me that it’s fine to chop and change, as the Inland Revenue doesn’t give any guidance on this. It rarely checks what split you’ve declared, anyway, apparently.
However, married couples who jointly own property don’t have such flexibility. HM Revenue & Customs will assume that a man and wife share any rental income 50:50 and tax them accordingly.
If a married couple want to reduce their tax by allocating a greater share of the income to the spouse on the lower tax rate, they need to split the ownership of the property accordingly. Of course, you can’t change the ownership every few years, as this would be prohibitively expensive.
There might be a stamp duty liability, as well as legal fees, and this could wipe out any income tax savings. So when I say “I do”, I’ll effectively be saying yes to paying more income tax. I must admit, I’m wondering if it’s worth it.
Of course, there are some tax advantages to being married, the main one being that when one of us dies the survivor won’t have to pay inheritance tax on anything they leave, including their share of the properties.
If we don’t marry, then when one of us dies the survivor will have to pay inheritance tax on their estate valued at over £325,000 (including any jointly owned property). Only spouses are exempt from inheritance tax on the deceased’s estate. I don’t think this is a concern for me for the time being, as my partner seems reasonably healthy.But who knows? I may turn into Bridezilla, start obsessing over “guest favours” and other wedding guff and therefore bore him to death — but hopefully not before the ceremony, when I get his share of the property tax-free.
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