Are there tax advantages to be being married….? I probably could have finished that sentence with the words “apart from all the other advantages”
Welcome back to the “You ask we answer” series of blogs that we do which are based on the questions that our clients ask us. I thought this might be a topical question now that people are starting to get into the festive spirit and that I have two nephews who popped the question in the last few weeks.
It was great weekend for Kilkenny hurling with all three clubs, Conahy Shamrocks, Tullaroan and Ballyhale all picking up Leinster Titles in junior, intermediate and senior grades. I thought it was important to get that in there. Ballyhale got a serious test from St Mullins who had a number of players who were super on the day and bodes well for Carlow hurling. They were well in it until luck wasn’t on their side when they were the width of a post away from getting a vital goal. Then TJ does what he does best by catching the resulting puckout and setting up Colin Fennelly for a goal that made things comfortable for the rest of the match.
It’s easier to talk about the hurling than the soccer as my team Man U are continuing to struggle against newly promoted teams getting the second score draw in a row. I thought we had a good defence but have now conceded 5 goals in the last 2 matches and our midfield is just so bad that the Seaview under 14’s wouldn’t be nervous taking us on. And now we have a revitalised Spurs under the “special one” coming to Old Trafford tonight. This is one of the reasons for writing this today as I could be in a very bad mood tomorrow although Ger would be in great form as a staunch Spurs supporter. I am keeping my distance from all Liverpool fans.
Anyway back to the question posed by our client. It is important to note that you don’t have to be married but that you can also be in a registered civil partnership to get the tax advantages of being “married” and when I refer to married in the blog I also mean those who are in a registered civil partnership. There are advantages across all the main personal taxes to include Income Tax, Gift and Inheritance Tax, Capital Gains Tax and Stamp Duty. There would be no advantages in terms of the main business taxes, which would include Vat, Corporation Tax, PAYE and RCT.
Blank face to happy face!
When I start explaining Income Tax I get the blank face and then when we get to the end the happy face as the explaining is over and the result can be more cash in your pocket
For Income Tax purposes, in the year of marriage, you are treated as two single people and taxed accordingly with single rate bands and single personal tax credits. After the first tax year in which you are married it is possible to do a year of marriage review. This is not a summit where you sit down with your partner to see if it was all that it was cracked up to be but a review of your Income tax for the year from date of marriage to the end of the tax year. If both partners are earning in excess of the lower rate band, which is €35,300 for 2019 then it is highly unlikely that a review would yield any tax benefit. However if one partner was earning less than the lower rate band, or earning nothing at all, then a review could be beneficial. Your tax advisor would complete a notional Income Tax computation for you on the basis that you were married in the year, claiming the married rate bands and married tax credits, and then compare the tax paid as a married couple with the combined taxes you paid as individuals. If there is a saving to be made then that saving is time apportioned over the number of months you were married. For example under the notional computation the Income tax saving was €2,000 and you got married in March 2019 then the refund would be 10/12ths of that figure which is €1,667.
In the tax year of marriage you should inform the tax office of your recent good news so that they can give you the married rate bands and credits for the tax year after marriage. The married tax credit is €3,300 which is the same as two single tax credits of €1,650. The maximum a married couple, in 2019, can earn at the lower rate band of 20% is €70,600 which is the same as two single rate bands. So, as mentioned above, there are no Income tax advantages if both partners are earning in excess of the lower rate band. If one partner is earning less than the lower rate band or not earning then the advantages can kick in. As a married person the maximum one spouse can earn at the lower rate, in 2019, is €44,300 so if one spouse was earning €50,000 and the other spouse was earning €20,000 then, even though it is less that €70600, it wouldn’t all be taxed at the lower rate. For the spouse earning €50,000 the first €44,300 is taxed at the lower rate and the next €5,700 is taxed at the higher rate of 40%. The combined €70,000 for the couple, assuming both PAYE workers, would result in a tax liability of €8,540. If that same couple were taxed as two single people the total tax liability would be €10,340 which is €1,800 more. This is the extra lower rate band for the married person of €9000 at 20%.
Partner not earning and minding dependents
The tax advantages could become even more pronounced when a partner is not earning and looking after dependents. Let’s take an example of Conor and Bridie. Bridie has a good job as a college lecturer and is earning €70,000. Conor is at home looking after their young son Jock. As a single person, in 2019, Bridie would pay €17,640 on that salary while as a married couple the tax liability would fall to €12,690 which is a difference of €4,950. This difference is made up of the additional €1,800 for the increased lower rate band, the additional €1,650 for the married credit and a home carer credit of €1,500. They are entitled to the home carer credit as they are jointly assessed, are caring for a dependent and Conor has no income.
This type of situation could be quite common in Ireland when kids come along as it may not be financially viable to pay for childcare, especially when one partner is on a lower income. We had a case like this recently and we will be able to secure a large refund for the client as he hadn’t informed Revenue that he got married and his spouse was in the home caring for their child.
See link attached to tax credits and rate bands on our site
If only, says you!!
Reminds me of what was said at a country wedding. It was something along the lines of “she went up the aisle with nothing and came down the aisle with half the farm”
The transfer of assets between spouses whether that is land, property or shares can be done with little to no tax consequences when you are married. There is no Capital Gains Tax [CGT] on the transfer of assets between spouses and civil partners nor is there any gift tax or stamp duty.
Take the example of Mary & Fidelma who are civil partners. Mary wants to give a gift of a residential rental property to Fidelma. The property cost €100,000 in 2015 and is now worth €250,000 so there is a gain of €150,000. This can be all passed over tax free to Fidelma so there is no CGT, gift tax or stamp duty. Fidelma will acquire the property as if she stepped into the shoes of Mary. In the event of Fidelma selling the property in the future her base cost is €100,000 ie what Mary acquired it for. If they were not married or civil partners the tax position wouldn’t be so favourable. The CGT cost would be about €49,000. There would be an additional €27,000 to pay in gift tax and another €2500 in Stamp duty so the total tax cost would be €78500 which is over 30% of the property value. You would be singing the Hozier song “Take me to church” with that sort of eye watering tax cost.
We will revisit the transfer of assets piece at a later date so please keep an eye out for future blogs on that topic.
As always seek professional advice and if you need to speak with any of the tax team here click this link.