The Effect Marital Status has on Tax and Accounting
Tax affects us all differently depending on how much earn annually, where we live, and of course our marital status. How exactly does our marital status affect tax and accounting though? Whether you’re newly married, you’re going through a divorce, or even recently lost your spouse, different tax regulations apply.
Single status
For those of single marital status, the way tax and accounting works can be pretty straightforward. Standard Personal Allowance for everyone is £12,500. Personal Allowance is available to everyone who resides in the UK, it is known as a tax-free allowance. For example, if you earn £20,000 per annum, your subsequent taxable income will be £7,500 due to the subtraction of your personal allowance.
This differs with income above £100,000. Your personal allowance gets reduced by £2 for every £1 you earn over this threshold. This means high earners who cross the £125,000 threshold do not receive the personal allowance.
Newly Married
For newly married couples, the first thing you should know is that to benefit as a couple, the lesser earning partner should in most circumstances have an income below your personal allowance. There is a way you can calculate the amount of tax you can save together, bear in mind that although you can save together when you transfer a portion of your personal allowance to your spouse, you could end up paying more tax yourself. So how can you apply for a marriage allowance? (also known as a transferrable allowance) There are three things you need before you can do so:
You Need to Be Married
You don’t Pay Income Tax
Your Spouse Pays Income Tax at a “Basic Rate“ (between £12,501 and £50,000)
You should contact HMRC if all three of these apply to you. You could argue that marriage allowances are a tax perk that makes paying taxes easier for both partners. There are other perks that come with a marriage allowance such as being able to file for one when going on maternity or paternity leave, if you or your spouse are not working, if you or your spouse are unemployed or if recently have lost your job.
Divorced couples
For divorcees or those who have filed for a divorce, the effect of tax and accounting can be a little different, as complications could arise. When it comes to divorce, your partner, that transfers between you both could result in unexpected Capital Tax Gain charges. Although the last thing anyone worries about when going through a divorce is tax, it’s important to seek financial advice about how to keep yourself from said tax charges that can occur along the way.
Death of a spouse
Lastly, for those who are have lost their spouse, it could affect your state pension. Up until their death you would’ve transferred allowanced between one another, which means that the last year of the claim would have been the year of death. Claims can be made when this happens, in most cases, you are able to claim more state pension than originally entitled too. Certain claims can be backdated for up to four years if all other conditions for the allowance have been met. If your deceased spouse was the lesser earner, then you should contact HMRC.
It’s always best to have HMRC advise you on the steps to take, and to inform them as soon as possible when your marital status has changed. This allows them to help you with any queries and claims before complications start to arise. When left to the last minute, you could find yourself in a sticky situation that you’re not sure how to handle, especially in situations such as divorce, and although tax may not always be the first thing you want to think about, it is worth considering to prevent undue stress.
