True love may be priceless but if you’re thinking of popping the question this Valentine’s Day, the financial benefits (and risks, too) are also worth considering.
Marriage is now no longer the norm, with new data revealing the number of couples getting hitched in England and Wales has dipped below the 50 per cent mark for the first time on record.
The drop is at least in part driven by finances: the cost-of-living crisis combined with the soaring cost of a wedding. But after the Big Day itself has been paid for, marriage (or civil partnership, as the same rules apply) could leave couples significantly better off over time.
1. The Marriage Allowance
The Marriage Allowance can be claimed if your earnings are below your Personal Allowance, and your partner pays basic rate income tax. The Marriage Allowance will let you transfer £1,260 of your Personal Allowance to your partner, reducing their tax by up to £252 in the tax year and giving your household income a small boost.
The Marriage Allowance can also be backdated to include any years that you both were eligible from April 5, 2017.
2. Capital Gains Tax Planning
Married couples also benefit from being able to give or sell assets to one another without incurring Capital Gains Tax (CGT). This can be a valuable tax planning tool when you come to dispose of assets, as each person’s annual CGT exemption amount can be used to mitigate any gains (essentially ‘doubling up’ any allowances).
This has particular benefit if one person has a lower marginal rate of tax – for example, if one partner will pay the lower 10 per cent capital gains tax on disposal than the higher rate of 20 per cent.
3. Inheritance Tax
A key area that unmarried or cohabiting couples should be aware of is that married and civil partnered couples benefit from special exemptions on death. This includes the ability to leave all assets to either partner free of inheritance tax, and the ability to inherit any unused Nil Rate Bands and Residence Nil Rate Bands (which can potentially mean passing on up to £1 million to family, tax-free).
Unmarried or cohabiting couples will only benefit from their own inheritance tax allowances, meaning the potential for a high tax liability landing on a surviving partner.
4. Wills and the Rules of Intestacy
For unmarried couples without a Will, there is no right for a surviving partner to inherit. A deceased partner’s assets could be passed on to other family via the Rules of Intestacy, no matter how long you have been in a relationship.
It is important if you have an existing Will to understand that this will become invalid on marriage or civil partnership and you will need to set up a new Will that details how you wish for your estate to be distributed.
5. Passing on ISA wealth
On death, the surviving spouse of a married couple who holds ISA assets can make an extra payment to an ISA policy, usually up to the value of the deceased’s ISAs at date of death. For those with large amounts of savings in ISAs, this ensures that the tax-efficient status of those savings remains, and funds can continue to grow within the tax-free ISA environment.
This benefit is only available for married and civil partnered couples; surviving unmarried couples would not be able to make additional ISA contributions above the standard £20,000 limit in the current tax year.
While married couples and those in civil partnerships are no longer seen as one taxable entity, choosing to get married does have an impact on our personal finances. Marrying someone doesn’t immediately mean you become financially associated – however taking out joint mortgages or loans together will, and those associated with you can have an impact on your credit score and ability to get credit in future.
And the risks?
Casey says: “While married couples and those in civil partnerships are no longer seen as one taxable entity, choosing to get married does have an impact on our personal finances.
“Marrying someone doesn’t immediately mean you become financially associated – however taking out joint mortgages or loans together will, and those associated with you can have an impact on your credit score and ability to get credit in future.”