HDM

How couples living together could be in line for mammoth tax break

New legislation currently being debated by MPs could help thousands of couples across Hull – and more than three million in the UK.

Civil partnerships are currently just for same-sex couples. It has the same pluses as those who are in a marriage, with a range of tax and benefit advantages that those living together can’t claim.

But MPs are currently debating whether to equalise civil partnerships, meaning they would be extended to opposite sex couples, the Mirror reports.

The incentives which would come from such a change could run into billions of pounds, according to Royal London.

The insurer estimates that if civil partnerships are equalised, 3.3 million cohabiting could benefit from the same financial safety net as those who have tied the knot.

Helen Morrissey, at Royal London said: “With each passing year more and more people are choosing to live together as a couple without marrying, yet we still have a tax and benefit system which barely recognises their existence.

“It cannot be right that they pay the same tax and National Insurance contributions into the system as their married counterparts but are entitled to get less out of it.”

Steve Webb, director of Policy at Royal London added: “Millions of couples who live together could potentially benefit to the tune of several billion pounds if they were able to register a civil partnership.

“The biggest areas where they could gain include new rights under company pension schemes, access to income tax breaks for couples and entitlement to bereavement benefits.

“But some could also see large gains from inheritance tax advantages currently restricted to married couples and same sex civil partners. This reform is long overdue and would stop these couples being treated by the state as second class citizens.”

If the law to equalise civil partnerships is passed, here are a handful of benefits that up to three million more people could receive.


1. ‘Marriage Allowance’

Since April 2015, most married couples and civil partners have been entitled to the ‘ marriage tax allowance ‘.

This allows the non-tax-payer in the relationship to transfer up to £1,150 of their personal allowance to their spouse, cutting their tax bill by up to £230 a year.

Right now, it only applies to couples that are married or in a civil partnership.

However, if all cohabiting couples were entitled, they’d collectively be able to claim an extra £750million (£230 each).

2. Income tax

Every individual has a personal allowance that’s not subject to income tax: a personal savings allowance , and a dividend allowance.

By law, unmarried couples can only make use of their own allowances.

However, if you’re married, you can share assets between you to take advantage twice.

If one of the couple pays tax at a lower rate (or is a non-taxpayer), any cash, and assets that produce an income, can be held in their name, to take advantage of their personal allowance, larger personal savings allowance, and lower tax rate.

3. Bereavement benefits for those of working age

Under current rules, when one person in a cohabiting couple dies, their surviving partner is not entitled to National Insurance benefits for bereavement.

In 2016, Royal London estimated that such couples were missing out on around £82million each year as a result.

If they were allowed to register a civil partnership, they would come within the scope of these benefits.

The Bereavement Support Payment is currently paid at two rates – a higher rate (for those with children) comprising a lump sum of £3,500 followed by a monthly payment of £350 for up to 18 months, or a lower rate of £2,500 with a monthly payment of £100 per month.

4. Inheritance tax (IHT)

Each individual has their own nil rate band (the amount you can gift someone without paying inheritance tax). This currently sits at £325,000 and includes gifts, money and property.

However, for married couples leaving everything to their surviving spouse, there will be no inheritance tax to pay on the first death.

For unmarried couples, when one dies and leaves everything to the other, everything aside from these allowances may be taxed at 40%.

In addition, when couples leave assets to one another, their nil rate bands also pass over to the other, so that the surviving spouse can leave £650,000 of cash and (assuming they are passing it to children or grandchildren) £350,000 worth of property free of tax. The same does not apply to unmarried couples.

5. State pension

Most of today’s pensioners reached retirement age before 6 April 2016 and came under the old state pension system .

This meant that in the event of death, the surviving spouse would be able to claim the equivalent of a full basic state pension based on their partner’s record of National Insurance contributions. These rights do not apply to cohabiting couples.

On this system, an older married woman could easily see her state pension boosted by around £2,500 per year following the death of her husband, but a cohabiting partner would miss out.

If the law changed, there would be a strong incentive for older cohabiting couples to register for a civil partnership in order to benefit from these provisions.

6. Inheritable ISAs

On death, any cash or investments held in an ISA will come out of the wrapper and go into the overall estate, to be divided according to whatever is laid out in the will.

It may also be subject to inheritance tax.

If you’re married, however, or in a civil partnership, you get an additional ISA allowance – equal to whatever your spouse held in ISAs at the time of their death.

t’s known as an Additional Permitted Subscription allowance – or APS.

It means that after probate, you can wrap assets into this APS again, and shelter them from tax. If you aren’t married, there’s no APS.


Read the full article here

MORTGAGE ADVICE HULL

Money Man mascot Related Articles...