Tax and financial planning for married couples
Tax and financial planning for married couples is one of the most important subject for married couples because marriage or civil partnership isn’t just a personal milestone, it also opens up valuable tax and financial planning opportunities.
While cohabiting couples have become increasingly common, the UK tax system still offers a range of benefits that apply only to those in legally recognised relationships.
This article highlights the key areas where married couples and civil partners can optimise their tax position across income tax, capital gains tax, and inheritance tax in 2024/25.
Income Tax Planning for Couples
Although each spouse or civil partner is taxed separately, there are several ways to structure income to make full use of both partners’ allowances and lower tax bands.
Marriage Allowance
If one partner earns below the personal allowance threshold (£12,570) and the other pays tax at the basic rate, the non-taxpayer can transfer £1,260 of their personal allowance to their partner known as marriage allowance.
This simple election can save up to £252 in 2024/25 and can be backdated for up to four tax years, potentially generating refunds exceeding £1,000.
According to HMRC, around 700,000 eligible couples still haven’t claimed this relief. It’s one of the easiest tax savings available and easy tax and financial planning for married couples to be considered.
Splitting Rental Income
Where property is owned jointly, rental profits are normally split 50:50 for tax purposes. However, couples can change this if one partner pays a lower tax rate. By adjusting ownership proportions and filing Form 17 with HMRC, more of the rental income can be taxed on the lower-earning spouse.
This requires holding the property as tenants in common and creating a declaration of trust to reflect the new ownership shares.
Example:
Chris and Dean, a civil-partnered couple, own a rental property generating £19,200 profit. Chris (a higher-rate taxpayer) holds 20%, and Dean (a basic-rate taxpayer) holds 80%. By submitting Form 17, they ensure income is taxed based on ownership, saving £1,152 per year.
Sharing Business Ownership
For family businesses, it can make sense to bring a spouse or partner in as a shareholder or director. This allows profits to be distributed through dividends, which are taxed at lower rates than salary (8.75%, 33.75%, or 39.35% after the £500 dividend allowance). Company pension contributions for both spouses can also help reduce corporation tax while building retirement wealth.
Capital Gains Tax (CGT) Planning
Each individual has their own CGT exemption of £3,000 (2024/25), and gains above this are taxed at 18% (basic rate) or 24% (higher rate) for residential property after 30 October 2024. Couples can use simple planning to double up on allowances and reduce tax.
Transferring Assets Between Spouses
Assets can be passed freely between spouses or civil partners on a “no gain, no loss” basis. This allows couples to spread ownership before selling, ensuring both CGT allowances are used or shifting the asset to the lower-rate taxpayer to reduce the bill.
However, transfers must be genuine and unconditional. This relief only applies while the couple are living together.
Business Asset Disposal Relief (BADR)
BADR reduces CGT to 10% on qualifying business assets, up to a lifetime limit of £1 million per individual. Where both partners are involved in a trading business, they can both potentially claim relief but timing and shareholding matter.
Each spouse must hold at least 5% of the ordinary shares and be an officer or employee for at least two years before disposal. A premature transfer of shares before a sale could disqualify the recipient from the relief if they don’t meet these conditions.
Example:
James and Sarah own shares in a family business. James holds 97%, Sarah 3%. James transfers 47% of his shares to Sarah. After five years, the company is sold for a £2 million gain. Each realises a £1 million gain and claims BADR, paying £100,000 each instead of a combined £369,000 if no transfer had been made.
Using Losses Between Spouses
While capital losses cannot be directly transferred, assets showing a loss can be gifted to a spouse. The receiving spouse can then sell them later to offset the loss against their own gains. Anti-avoidance rules prevent the asset from being returned to the original owner.
Inheritance Tax (IHT) Planning
For IHT purposes, married couples and civil partners enjoy significant advantages.
Spouse Exemption
Transfers between UK-domiciled spouses or civil partners are fully exempt from IHT, both during lifetime and on death. This means assets can pass tax-free to the surviving spouse, preserving the estate’s value.
Transferable Nil Rate Bands
Each individual has a £325,000 nil rate band (NRB), and unused portions can transfer to the surviving spouse. There’s also the Residence Nil Rate Band (RNRB) of £175,000 when a main home passes to direct descendants. Together, a couple can potentially pass up to £1 million tax-free.
Large Estates and the £2 Million Threshold
Where the combined estate exceeds £2 million, the RNRB tapers away. Couples can preserve this relief by:
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Equalising ownership during lifetime so neither estate exceeds £2 million on first death; and
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Leaving business assets or gifts to children or trusts to prevent aggregation of the estate on second death.
Non-Domiciled Spouses
Where one spouse is non-UK domiciled, the spouse exemption is capped at £325,000. However, the non-domiciled spouse can elect to be treated as UK-domiciled to benefit from the full exemption, though this brings their worldwide assets into the UK IHT net. This election can be made during lifetime or within two years of the UK spouse’s death, but once made, it cannot be revoked.
Final Thoughts
Marriage and civil partnership continue to offer tangible tax advantages under UK law. From income-shifting and capital gains reliefs to full IHT exemptions, there are genuine planning opportunities available but timing, ownership, and documentation matter.
Tax rules around transfers, elections, and reliefs are nuanced, and professional advice is essential to make them work effectively for your circumstances.
For tailored guidance, contact KSM Consulting Ltd, where our tax specialists help couples structure their assets and income efficiently, ensuring that family wealth is protected across generations.
Call: 0208 672 3411 Email: info@theksma.co.uk Visit: www.theksma.co.uk