The Financial Advantages of Marriage

I wrote this article originally as I was finishing work to get married. At the time as an IFA, I thought I would explore the financial advantages of marriage (and Civil Partnerships). I didn’t do this before I said “Yes” and obviously, these were not the reasons why I married my beau. With wedding season fast approaching, I thought I would re-purpose this article.

Married tax allowance

The marriage allowance started on 6th April 2015. It permits a spouse or civil partner who doesn’t pay income tax to transfer up to £1,190 of their personal tax-free allowance to their partner. But if that partner is a higher rate taxpayer, earning more than £46,350 a year (£43,430 if you are in Scotland), the couple will be excluded from the tax break.

By transferring the personal allowance, it reduces their tax by up to £238 in the tax year. To benefit as a couple, the lower earner must have an income of £11,850 or less. The recipient must be a basic rate taxpayer. Claims may be back dated so many could get last year’s AND this year’s allowance.

Pensions

If you are married and have a final salary pension, this could pay up to 50% of the pension income to your spouse or civil partner upon your death. Most final salary scheme pension’s scheme rules stipulate that the benefit can only be paid to a spouse, civil partner or sometimes a financial dependent. Therefore, if you are co-habiting, they will not necessarily provide this benefit.

Inheritance tax

Currently, Inheritance Tax is 40% of assets value above £325,000. Therefore, if someone died with an estate valued at £500,000, they would have an IHT bill of £70,000 (£500,000 – £325,000 x 40%). One of the biggest (financial) advantages to being married is the ability to pass on assets after your death without incurring inheritance tax.  If you are married or in a Civil Partnership, all assets can be passed to the surviving spouse without any inheritance tax liability. Moreover, on the death of the surviving partner, they can utilise both IHT allowances. Therefore having an allowance of £650,000 before IHT is applied.

In addition to this the Residence Nil Rate Band is applied when the main residence is passed on death to a direct descendant. The amount is phasing in and is currently £125,000 per person, increasing each year to £175,000 in 2020/2021.

Like the £325,000 threshold, any unused additional nil-rate band will be able to be transferred to a surviving spouse or civil partner. Therefore as per the following example, some couples could qualify for £1,000,000 IHT free. For more details on this, please refer to my previous Blog “Inheritance tax – where death and taxes sometimes go hand in hand”.

Inheritable ISA

On 6th April 2015, rules came in so that upon death, the deceased spouse or civil partner can inherit their ISAs which will retain their tax advantageous status. Previously, the ISA wrapper would be removed and the money would then be exposed to tax. This change thus saves the recipient money.

Conclusion

Although there are some significant tax and pensions advantages to marriage, they are often applicable to the older population and to those who have built up their wealth. And despite these financial advantages of marriage, I still believe the number one reason for marriage should be love (I just hope I won’t need to be referring to my blog “Pensions and Divorce” at any point in the future).

Tax rules, rates and allowances are all subject to change and are dependent on individual circumstances. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise and you may not get back the full amount you invested.

The figures quotes are correct as at the 2018/19 tax year.

 

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