Property decisions and tax - on marriage
November 2005
All comments that follow apply equally to married couples and partners registered under the Civil Partnership Act (from 5 December 2005).
One of the most critical pieces of tax planning for couples prior to marriage concerns property.
If both parties own their own home prior to marriage then a choice needs to be made as only one of the properties can qualify as a tax exempt principal private residence after marriage.
Factors that can influence the best tax strategy include:
1. Are both properties to be kept after marriage, or one sold shortly afterwards?
2. Should the properties be owned jointly or continue to be owned separately?
3. If retained what are the future plans for the second property after marriage - will it be let?
4. Which property has the most equity, and so on?
After marriage any transfer of property between partners is free of both Capital Gains Tax and Inheritance Tax. Typical tax planning objectives might be:
Capital Gains Tax
• If both properties are retained, and the non-principal private residence is let post marriage, then no capital gains tax will apply on a sale up to three years after marriage.
• Whatever the decision, to keep a second property or to sell, it is likely that actions will have to be taken after marriage. This being so it is vital that proper elections are made to choose which property is to be considered the couple's main residence for tax purposes. This involves signing and lodging the appropriate piece of paper with the tax office. This only applies if both properties are actually used as residences.
• These elections can be varied. There is also a two year time limit for filing which starts from the date of marriage in most cases. Inheritance Tax
• Depending on the mix of assets in each parties ownership, moving properties into joint ownership can help to equalise estates and reduce overall tax risk.
• Marriage or formal partnership should trigger a visit to your advisors to revise your wills. This again should aim to equalise your joint or separate ownership of property and other assets. See the separate article we have written this month on the use of Nil Rate Band Trusts.
So if you are planning to marry, or enter into a civil partnership, please call so that we can make the most of the tax benefits available
