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Marriage counselling

Tax implications and prenuptial agreements may need to be considered before entering into marriage

I am thinking of asking my girlfriend to marry me. What should I bear in mind, particularly concerning the considerable portfolio of assets my grand-mother recently left me?

There are many reasons to marry, the best being that you love each other and want to spend your lives together. As for the hard facts relating to the institution of marriage and taxation rules which apply, there are many things to consider.

You mention your portfolio and may want to consider a prenuptial agreement. The content of a prenuptial agreement can vary widely but commonly include provisions for division of property and spousal support in the event of divorce or break-up of marriage.

Prenuptial agreements have historically not been considered legally valid in England. This is still generally the case although a 2010 Supreme Court test case between German heiress Katrin Radmacher and Nicolas Granatino indicated that such agreements can “in the right case” have decisive weight in a divorce settlement.

There is currently a consul-tation issued by the Law Commission closing on April 11 which considers the contention that arises if one of the couple is not aware of the true wealth of a divorcing spouse. This may result in a prenuptial agreement not being upstanding in a court if all material facts are not disclosed.

In terms of taxation, an equalisation of estates is a sometimes sensible aim. When married, you can transfer any unused inherit-ance tax threshold from a late spouse or civil partner to the second spouse or civil partner upon death (watching out for any potentially exempt trans-fers that may have been made in the previous seven years). This can increase the IHT threshold of the second part-ner from £325,000 to as much as £650,000 in 2010/11.

The transfers between spouses must be “real” trans-fers and effected as if to a third party. This means all relevant documentation must be correctly completed.
Any transfer of the nil-rate thre-shold must be supported by:

  • The marriage certificate or civil partnership registration
  • The death certificate of the first spouse
  • The will of the first spouse
  • Probate details of the first spouse

Transfers of assets before a taxable gain is realised can be made between spouses or civil partners living together, resulting in both annual CGT exemptions (£10,100 for tax year 2010/11) being used. For example, if you transfer investments to your wife that you bought for £10,000 which are now worth £20,000, you realise a potential capital gain of £10,000. However, as the transfer is inter-spousal, the assumption is that the shares are trans-ferred at a value of £10,000.

Therefore, you will not realise any capital gain and your wife is deemed to have acquired the shares at a cost of £10,000. If you both decide to sell the investments at their £20,000 value, her capital gain will be £10,000 which is ideal if she has no CGT gains of her own. The annual exemption cannot be carried forward if not used and it is therefore important wherever asset disposals are to be made that each spouse utilises their exempt amount which may require inter-spouse transfers to be made prior to sale.

Spouses and civil partner-ships can divert income to each other to save on income tax and own assets, generating income sufficient to mitigate any exposure to higher-rate income tax.

Kim North is managing director at Technology & Technical

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