10 Jan 2019
For better, for worse, or for tax benefits
Julie McMahon, Associate in our Wills, Trusts and Executries team, reveals a number of financial benefits that come from tying the knot.
I’ve come back to work this week to hear of a few engagements over Christmas. This reminded me that the festive season is a popular time for proposals and for some couples to hold their wedding. I spotted that Miley Cyrus married Liam Hemsworth on 23 December and model Heidi Klum announced her engagement on 24 December.
While these celebrities have no financial worries there are some who still wonder might it be a good idea to marry for money and in some ways it might as there are tax breaks and other financial considerations that could make marrying your partner more prudent money-wise than simply cohabiting.
UK taxation legislation treats married couples and those in civil partnerships differently from unmarried couples and it is worth being aware of the differences.
Inheritance tax (IHT)
IHT is something that older people tend to be more concerned about than young people, but obviously it could impact any of us. This is the major financial benefit that comes with marriage or a civil partnership.
If you are married then on your death your assets can be passed to your spouse free of IHT. On the death of the survivor their estate can benefit from their own nil rate band (IHT free amount) and the balance of any unused nil rate band of the first to die.
During lifetime assets can pass between spouses without any IHT concerns.
Succession
A married individual also has certain rights in the estate of their spouse if the spouse dies without having made a Will. If you are not married your partner will not automatically inherit your estate. The preparation of Wills is imperative in these circumstances if you wish to make provision for each other and are not married.
Capital gains tax (CGT)
Assets can be transferred to a spouse or civil partner free of CGT. This means a couple can benefit from both CGT annual exemptions (annual tax fee amount) when selling assets that trigger a charge to CGT.
Income tax
If you or your partner is a low earner, getting married may mean qualifying for the marriage tax allowance. Each year, everyone has a personal allowance, which is the amount you can earn before you need to start paying income tax. This is currently £11,850.
If one of you earns under £11,850 and the other earns more than that but less than £43,430, the marriage allowance means the lower earner can transfer £1,190 of their personal allowance to their spouse, reducing their tax liability.
Pensions
If you have a defined contribution pension, which is the most common type nowadays, you can name your partner as a beneficiary and they will inherit your pension when you die, whether you are married or not.
However, if you or your partner has a defined benefit pension - most common in the public sector or large corporations - there are specific benefits that can usually only be received by a widow or dependent child. If you are married, the surviving spouse can receive a ‘survivor’s pension’, sometimes for the rest of their life. An unmarried partner is unlikely to be entitled to this, although it depends on the pension scheme rules.
Insurance
Surprisingly, you may also benefit from lower insurance premiums if you are married, particularly when it comes to car insurance. This is because insurance company data shows that married people make fewer and less expensive claims than single people, so premiums are reduced accordingly.
Speak to an expert
If you would like any further information or advice about the above, click here to speak to Julie or a member of her team.