HMRC provide advice on self-employed tax returns
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Unmarried couples are becoming “second class citizens” thanks to the country’s archaic tax system, analysts from Quilter have said. As well as being a sign of love and commitment, marriage and civil partnerships are also a legal agreement between partners which allows them to qualify for certain tax benefits.
An example of a popular tax benefit is Marriage Allowance. This allows a husband, wife or civil partner to transfer up to £1,260 of their Personal Allowance to their significant other.
In order for couples to qualify for this tax benefit, the lower earner of the two must normally have an income below their Personal Allowance. This amount is usually £12,570.
It is possible to calculate how much tax can be saved as a couple using HMRC’s Marriage Allowance calculator.
People can use the Government’s Income Tax helpline instead if they get other income such as dividends, savings or benefits from their job. Claimants can also call if they do not know how much their taxable income is.
When a person transfers some of their Personal Allowance to a husband, wife or civil partner, the one who made the transfer might have to pay more tax themselves, but could still pay less as a couple.
If the couple is based in Scotland, the lower earner’s partner must pay tax at the starter, basic or intermediate rate, which usually means their income is between £12,571 and £43,662.
Shaun Moore, tax and financial planning expert at Quilter, noted the most recent statistics from the Office for National Statistics (ONS) on marriage in his criticism of how the tax system discriminates.
“Despite a year of thousands of weddings getting postponed or cancelled due to the Covid restrictions, married or civil partners remained the most common legal partnership status in 2020, accounting for just over half (50.6 percent) of the population aged 16 years and over in England and Wales.
“While this remains similar to previous years this has drastically changed over the decades. Older people are much more likely to be married than younger people with a huge rise in popularity in cohabitation in those in their 20s and 30s.
“Now, a not insignificant 13 percent of the population cohabit, which has risen two percent in the last ten years.
“Although there is nothing inherently wrong with this, unfortunately couples simply do not enjoy the same rights as spouses or civil partners on death, or the same financial protection as a married couple with children.
“They are effectively living as second-class citizens when it comes to tax rights.”
The tax expert warned of the specific financial vulnerability which women and unmarried couples with children are exposed to when deciding not to get married.
He added: “Cohabitees are running the risk of not automatically inheriting anything on death, unless they jointly own property.
“By contrast, a married partner would inherit all or some of their partner’s estate, even without a will being left.
“Similarly, cohabiting partners who stay at home to care for children have few legal rights on property, maintenance or pension-sharing, leaving them vulnerable in case of a breakup.
“In contrast married partners have a legal duty to support each other, but cohabiting couples are not legally obliged to support each other financially.
“Although the times are changing and the rise in home working has improved the balance, women do often continue to bear the brunt of childcare.
“This means cohabitation can be particularly damaging for women who have taken a career break to look after children as they could be left in poverty when a relationship ends.
“Until the law catches up with modern living habits, couples should carefully consider the financial benefits that becoming legally married or entering into a civil partnership can provide.”
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