Valentine's Day doesn't have to break the bank, thanks to the UK tax system. While the average person is expected to spend £50 on February 14, there are several tax perks that can save couples hundreds of thousands of pounds. Here are five ways being in a couple can pay off financially:
1. Maximising your Personal Savings Allowance
Most taxpayers have a Personal Savings Allowance (PSA) that determines how much interest they can earn without paying tax. By transferring savings from one partner's account to another, couples can make use of the remaining PSA and avoid paying tax on savings income. This is especially important now that interest rates have risen.
2. Making use of the lower earner
Organising savings and investments so that the lower-earning partner pays tax at a potentially lower rate can result in significant tax savings. By moving money from one account to another, couples can take advantage of this strategy. However, it's crucial to ensure that the additional income doesn't push the lower earner into a higher tax bracket.
3. Marriage allowance
Couples with one basic-rate taxpayer and the other earning less than the personal allowance (£12,570) can benefit from the Marriage Allowance. By transferring £1,260 of the personal allowance to the partner, their tax can be reduced by up to £252. This allowance can be backdated up to four years, potentially resulting in a total tax refund of up to £1,256.
4. Survivor benefits on a pension
Under a defined benefit pension scheme, married couples can ensure that the surviving partner receives 50% of their entitlement for the rest of their life. It's essential to update the "nomination of beneficiaries" form if circumstances change to avoid complications. If a partner dies, the surviving partner can start their pension claim by contacting the employer or pension provider.
5. Inheritance tax
Inheritance tax is charged on the estate left by a deceased partner. However, couples can benefit from a tax-free threshold of £325,000. Anything above this threshold is subject to a 40% tax rate. By leaving everything to the spouse tax-free, couples can potentially pass on up to £1 million to the rest of the family without paying inheritance tax.
By taking advantage of these tax breaks, couples can save significant amounts of money and make the most of their financial situation. It's important to explore these options and consider how they can benefit you and your partner this Valentine's Day.
Did you miss our previous article…
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