Marriage – The Financial Side
Is there any point in being married?
You meet someone, fall in love, and hearts pop out of the sky when you look at them. They’re the person you want to spend the rest of your life with. But is there any point in actually being married? Martin Lewis gives us the lowdown…
Much of the answer is mixed up with complex competing views on tradition, religion, convention and emotion. Many have happy, long term stable relationships without wedding ceremonies. Yet as the Royal Wedding has heightened conversations about the institution of marriage, I thought it worth explaining what difference it makes to your finances too.
Marriage, and these days civil partnerships too, still count in many UK laws and rules. People talk about couples who live together and are unmarried as ‘common law partners’ – yet that’s just a phrase – it doesn’t usually give you rights.
So, here’s my list of the seven main financial rights of marriage – including civil partnerships – over just co-habiting (don’t blame me, I’m just the messenger), you’ll note, many of them involve death!
1. You can get a free £900 tax break if you’re married
This is deliberate government social engineering to reward marriage through the tax system. It was launched three years ago and applies where one is a basic 20% rate taxpayer and the other a non-taxpayer.
The non-taxpayer can apply to have 10% (£1,190) of their tax-free allowance shifted to the taxpayer. This means £1,190 of income they were taxed on at 20% is now tax-free – a £238 gain this year done via altering your tax code.
If eligible you can back claim to when it started too, so that’s a cheque for £662 – making a total of £900. It takes five minutes to do at www.gov.uk/marriage-allowance – it’s the non-taxpayer who must apply. If you’ve questions read my www.mse.me/marriagetaxguide for full help.
2. You may get a bigger state pension if your spouse dies
If your married partner dies you may be able to get extra payments from their pension or national insurance contributions as long as you’ve not already built up the full basic state pension entitlement yourself, as well as inherit some of their additional state pension.
Exactly how much depends on a range of factors such as retirement date and more. And if you’re not at the state pension age yourself and remarry before you reach it, you won’t be entitled to it. There’s more info on the exact rules at www.gov.uk/state-pension/inheritance.
It’s also worth noting many workplace, personal and private pension schemes will only pass on benefits to a surviving partner if they are married too.
3. Your spouse won’t pay inheritance tax
When you die, any money, property or assets left to your spouse is automatically exempt from inheritance tax.
4. Unused inheritance tax allowances can be transferred
There’s no inheritance tax to pay on the first £325,000 of anyone’s estate. Tax is only paid above that. If any of this is unused when your spouse dies, then the remainder can be passed across to you.
For example, if a wife left everything to her husband, so there was no inheritance tax to pay, her entire £325,000 allowance would pass across to him too. So now when he dies, he has a £650,000 allowance.
The same also applies to any unused portion of the £125,000 property allowance (which reduces tax left to children on sale of a house).
5. You can inherit your spouse’s ISA allowance.
An ISA allowance can be passed on to a spouse. So if they’ve £30,000 in ISAs you get this on top of your own ISAs.
6. Die will-less and your unmarried partner may get nowt.
If you’re not married, share a home with your partner, and don’t have a will – even if you’ve been together thirty years and have 17 kids – if you die, that means nothing. Depending on how the home ownership is structured they could even lose that. So a will is crucial.
For those who are married, laws known as intestacy rules do give some protection, though exactly how it works depends on which part of the UK you live in. Even so making a will so you can decide exactly where your assets will go is by far the best protection. And it needn’t be that costly, sometimes it’s even free, for full help see www.mse.me/cheapwills.
7. You can boost your savings interest or capital gains allowance.
Savings and investments can be freely moved between spouses – without any risk of later inheritance tax, or capital gains tax.
Of course these days with the personal savings allowance letting basic-rate taxpayers earn up to £1,000 interest a year without tax, most people don’t pay tax on their savings any more. Yet if you do, then moving savings to use up the other’s allowance, or to the one with the lower tax rate, makes sense.
Plus if you’re selling something (like shares) which will attract capital gains tax, you get an annual allowance of £11,700 profit tax-free. If you’ll go over this, you can pass some of the asset to your spouse first, to use up both your allowances.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip.