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Jennifer Adams examines the benefits or otherwise of getting married (or entering into a civil partnership) focusing on property tax in particular. 

In the UK, property taxes are not as directly tied to marital status as they might have been in the past, but marriage can still influence how certain property taxes are applied.  

By default, where a married couple (or civil partners) owns property as joint tenants, any rental income is usually split equally for tax purposes. Should the ownership shares be unequal as tenants in common, the couple can make a declaration (on HMRC form 17) to have the profitstaxed in the proportion (or losses allocated) of the beneficial interest held in the property.  

Being taxed using beneficial interest would be beneficial where one spouse or civil partner is a higher (or additionalrate) taxpayer and the other spouse or civil partner is taxed at a lower rate (or is a non-taxpayer).Under a form 17 election, the lower-rate spouse or civil partner can be allocated a larger share of the equity so as to be taxable on more of the rental income.The form must be submitted within 60 days of the date of signing a declaration of trust or a deed of arrangement. HMRC applies this restriction strictly. 

Even if the property is held as tenants in common, without the form 17 declaration the couple will be taxed on an equal share of any profit from a jointly owned property. Should the owning spouse or civil partner not wish to transfer a material percentage of ownership but still wish to reduce their tax bill, a nominal amount (say, 5%) could be transferred to the other spouse or civil partner.  

Note that this transfer of ownership must be undertaken formally via a solicitor. Therefore, should the property have been purchasedjointly and the couple wishes to take advantage of form 17, legal costs of changing the deeds need to be factored into any tax benefit. If there is a mortgage on the property, there may be a stamp duty land tax (or devolved equivalent) charge, and the mortgagor should be advised. 

The rule for form 17 applies to income only arising only from the date of the declaration. Therefore, a declaration made very late in the tax year may have little or no effect on the couple’s overall tax position for that year. Once made, the form 17 claim remains valid until one spouse or civil partner dies, or the couple separates permanently or divorces, or the spouse or civil partner's beneficial interest in the property or income changes. 

One of the significant benefits of marriage is that there is no capital gains tax (CGT) on the transfer of property between spouses or civil partners. Therefore, should one spouse or civil partner transfer property to the other (either during their lifetime or upon death), no CGT is payable at the time of transfer. The basic rule for CGT purposes is that inter-spouse (or inter-civil partner) transfers (assuming the couples are living together) take place at ‘no gain,no loss’ whatever the amount (if any) that is paid by the spouse or civil partner acquiring the asset and at the date of the transfer.  

However, it is important to note that although the transfer takes place at no gain, no loss, a disposal for CGT purposes still occurs but is not taxable at the time of transfer. The receiving spouse or civil partner or partner acquires the interest in the property at the original cost to the transferor spouse or civil partner (plus indexation for pre-5 April 2008 transfers). CGT is only potentially chargeable when the donee spouse or civil partner eventually sells the asset. 

Such a transfer can be of overall benefit,potentially enabling optimum use of both individuals'CGT annual exemptions. It can also avoid the situation where one spouse or civil partner has gains in excess of their annual exemption and the other spouseor civil partner has unrelieved losses. 

Some caution is needed with the transfer of loss-making assets incurred in the same or a previous tax year due to a‘targeted anti-avoidance rule’.Essentially, this is directed at the artificial use of losses to avoid CGT. However, the rule may catch ‘innocent’ transactions. and anyone planning something involving their spouse or civil partner’s CGT losses should take advice to ensure they will not fall foul of the rule. 

The scope for married couples to reduce tax is perhaps greater under the inheritance tax (IHT) rules than under any other tax.  

A legacy from one spouse or civil partner to another is generally free of IHT, and should the first spouse or civil partner to die leave everything to the spouse or civil partner,even greater savings can be made because the first spouse or civil partner's nil-rate band passes to the survivor. 

Marriage does not directly affect stamp duty land tax (SDLT) rates as when purchasing property (in England or Northern Ireland), whether married or not, SDLT is payable based on the purchase price. 

SDLT is also not charged on a gift of property unless there is a mortgage attached. The reason is that the recipient of the gift is deemed to have ‘paid for the gift by taking over responsibility for the same proportion of the mortgage as the gifted share of the property’. However, this would only create a problem if the value is above the SDLT threshold (currently £250,000 for residential property). 

Additional reliefs regarding SDLT are available but not exclusively available to spouses or civil partners. For example, should both spouses or civil partners buy a property together, they may benefit from certain first-time buyer exemptions or reliefs if both meet the criteria, such as being first-time buyers and purchasing a property for under £425,000. 

Making gifts 

Where a sale of property is envisaged, married couples and civil partners can generally transfer the property between one another with no tax liability,in order to take advantage of their combined CGT allowance; or they can transfer in full to the partner who is expected to incur the lesser charge.