Married couples and civil partners could save up to £1m through overlooked tax perks

Couples who are married or in a civil partnership have access to significant tax benefits not available to others, says TWM Solicitors, a leading private wealth and family law firm.

Laura Walkley, Partner and Head of Private Client at TWM Solicitors says:

“If you are married or in a civil partnership, you are entitled to potentially valuable tax advantages. Collectively they can be worth hundreds of thousands of pounds, so it’s important to take advantage of each of them.”

“By taking full advantage of these tax benefits, you ensure your spouse/civil partner inherits as much of your estate as possible. In addition, you ensure that the maximum possible amount will go to your heirs. Tax reliefs are immensely valuable for families looking to protect and pass on their wealth.”

What are the six key tax benefits for married couples and civil partners?

1. Inheritance tax (IHT) exemption for married couples and civil partners

Any wealth inherited from a deceased spouse/civil partner is exempt from inheritance tax (IHT), provided the survivor is a long-term resident of the UK. There is no cap to this exemption, and no minimum duration needed for the marriage or civil partnership.

In addition, gifts to spouses and civil partners do not use up any part of the deceased’s IHT-free allowance (called a ‘Nil Rate Band’), which is worth £325,000.

The additional advantage is that married couples/civil partners can effectively ‘double’ the value of this tax relief, by passing it to the survivor on the first death. If the £325,000 isn’t fully used up on the death of the first spouse/civil partner, then the remainder of that allowance is transferred to the second spouse/civil partner. This means the second spouse/civil partner can pass on an IHT-free allowance worth up to £650,000 when they die.

This is one of the reasons there are so many ‘deathbed’ marriages within the UK. Couples qualify for this tax benefit immediately upon marriage/civil partnership.  

2. Married couples/civil partners enjoy an additional inheritance tax-free allowance on their main home

Inheriting from a deceased spouse/civil partner is already IHT-free. However, there’s an additional allowance of £175,000 per spouse/civil partner for main residences. This is called the ‘Residence Nil Rate Band’ (RNRB).

The RNRB applies where a person who owns their home dies leaving their assets to ‘lineal descendants’: children, grandchildren, and so on. 

Like the Nil Rate Band, the RNRB can be passed between the spouses and civil partners. If the first dies leaving their estate to the survivor, then on the second death, the heirs are entitled to benefit from a further combined allowance of £350,000 on top of the £650,000 tax-free allowance mentioned earlier. This brings the total IHT-free allowance for married couples/civil partners to £1m.

However, the estate must be worth less than £2m for the tax relief to apply in full.

3. Tax-free inheritance of ISAs for surviving spouses or civil partners

Married couples/civil partners are also entitled to income tax and capital gains tax relief on Individual Savings Accounts (ISAs) held by either spouse.

ISAs allow individuals to save tax-free – usually in either cash or stocks and shares. They are often used as pension pots or regular savings accounts. 

If a person who is married or in a civil partnership dies owning an ISA, the surviving spouse or civil partner is entitled to claim the deceased’s ISA whole allowance in addition to their own. This benefit does not apply to cohabiting couples. 

4. Married couples/civil partners are exempt from paying capital gains tax on gifts

Capital gains tax CGT is typically payable when assets such as investment properties and shareholdings are sold or given away having gone up in value since the owner acquired them.

However, spouses and civil partners pay no CGT on gifts to one another, regardless of the increase in value. Partners who aren’t married or in a civil partnership cannot gift assets to one another tax free.

Through this relief, spouses/civil partners can transfer any investments they have to one another tax-free.

However, if the gift is a business, this tax benefit does not apply to the goods the business then sells. The profits a business makes from selling goods or services will be liable for corporation tax.

Additionally, this tax relief doesn’t apply if the spouses/civil partners have separated during that tax year. The tax authority will likely consider it to be a legal separation if the spouses/civil partners live in different addresses.

While married couples/civil partners can transfer assets to each other tax free, if the asset is later sold it will incur the normal CGT rate for that individual.

5. State Pension benefits for married couples and civil partners

A surviving spouse or civil partner may inherit part of their partner’s State Pension, boosting their own entitlement.

Everyone who makes National Insurance contributions is entitled to a State Pension when they reach retirement age. The retirement age is 66 for both men and women, increasing to 67 for both between 2026 and 2028.

If someone’s National Insurance contributions were small or irregular they may not qualify for the ‘full rate’ i.e. the maximum State Pension entitlement.

In this case, they can increase their State Pension by inheriting a portion of their deceased spouse/civil partner’s pension. If the deceased’s National Insurance record entitled them to the full rate, then they can claim a portion of this which will be paid with their normal pension.

6. Pension contribution tax relief for married couples and civil partners

A working spouse or civil partner can pay into their non-earning partner’s pension (up to £2,880 a year) and benefit from 20% tax relief, increasing the contribution to £3,600.

This tax relief is not available to unmarried couples.