Love is in the air! Meg Saksida outlines the tax benefits of being a couple for Valentine’s Day.
Whether it is a budding new relationship, an engagement or an established marriage or civil partnership, there are practical and (not so romantic!) ways that the couple’s tax position can benefit.
The first romantic steps
What about a tax-deductible meal out together? It sounds far-fetched, and to be fair, for most of us it is. But if it happens that your loved one is your only employee, because staff entertainment under £150 for annual events does not give rise to a benefit-in-kind on the employee, and because staff entertainment is allowable (as long as it is not incidental to client or other entertainment), it could also be tax-deductible.
Good luck convincing HMRC that your tête-a-tête is ‘wholly and exclusively’ for the purpose of the business, though!
Engagement or a promise to enter a civil partnership?
If you are the one about to propose, you may be in need of some funding to purchase a ring. Any assets you dispose of to generate the cash required will be exempt from capital gains tax (CGT) if they are either bought and sold for £6,000 or less or are wasting assets; so converting that sports car, boat or Rolex watch into a diamond ring makes good tax sense.
Once the happy day arrives, friends and family can gift to you in abundance without an inheritance tax (IHT) charge. Parents can gift up to £22,000 a couple if they have two full annual allowances available, utilising their £5,000 marriage allowance (MA) each. Likewise, grandparents are also able to gift up to £2,500 MA each and other relatives and friends up to £1,000 MA (increasing to £8,500 and £7,000 respectively, if they too have their two unused £3,000 annual allowances)
Inside a marriage or a civil partnership
Do you require a little incentive to pop the question? If you are both basic-rate taxpayers, the transferable marriage allowance for income tax allows 10% of one of the couple’s personal allowances to be transferred over to the other person, resulting in a tax reduction of up to £252. This would definitely pay for the Valentine's meal every year, so it would be worth the extra admin required to make this online claim.
If you happen to be an octogenarian romantic couple, the married couple’s allowance is available to those couples in which one of them was born before 6 April 1935, making the taxpayer at least 87 years old on 14 February 2023. For these lucky seniors, 10% of a married couple's allowance (£9,145 for 2022/23) is deducted from their income tax bill. It is abated £1 for every £2 the pensioner has adjusted net income of over £31,400, down to a minimum allowance of £3,640.
Other benefits of being in a legal couple stem from CGT and IHT transfers. Disposals of assets made between legal couples are made on a ‘no-gain/no-loss’ basis for CGT purposes, meaning that the recipient partner effectively takes the asset at the historical cost of the donor partner. This allows any gains or losses made on the disposal of the asset to arise on the recipient partner: a great way of ensuring that between a couple, any predicted gains are covered by brought forward losses and annual allowances.
For IHT purposes, gifts between spouses or civil partners are IHT-free unless you are a UK-domiciled partner gifting to a non-UK domiciled partner, where the lifetime gifting limit is £325,000.
Practical tip
If your loved one is your employee, a Valentine's gift could be covered by the trivial benefits exemption. The gift must not be linked to performance, must not be cash or a cash voucher, and the cost must not exceed £50 – bunch of red roses, anyone?
