Contemplating the Monetary Advantages of Marriage: To Wed or Not to Wed?

Here Comes Marriage? A Guide to Financial Advantages in the UK

Tying the knot might not be everyone's cup of tea, but with impending tax changes, it could become a smart financial move for many. Here's a lowdown on why you might wanna consider walking down the aisle.

Marital Bliss: It's Not All Love and Roses

Marriage isn't immune to changing times, and so are the financial and legal privileges linked to it. In a world where the law lags behind society, it's essential to understand what benefits you could be forgoing without saying, "I do."

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Personal allowance

The Great Pension Shuffle

Up to £12,570

Speaking of budgets, Chancellor Rachel Reeves recently announced pensions will be included in estate values for inheritance tax (IHT) purposes from April 2027.

This means more estates might pay IHT, but married couples can delay this by transferring assets to their spouse or civil partner. Married couples can pass assets, including pension savings, tax-free, a luxury not afforded to co-habiting couples.

Emma Sterland, chief financial planning director at Evelyn Partners, explains the potential issue:

Basic rate

"While possibly benefitting from two sets of nil-rate bands, their remaining wealth could be inflated by the pension assets from the first death, potentially increasing the IHT liability for their children or other beneficiaries - especially if they die soon after their spouse."

£12,571 to £50,270

20%

Another financial plus of marriage? The ability to team up to maximize Individual Savings Account (ISA) allowances. Each year, everyone over 18 has a £20,000 ISA allowance, a tax-efficient wrapper for savings and investments.

While you can't open a joint ISA account, married couples can effectively double their ISA allowance to £40,000. Here's how: if your partner hasn't maxed out their allowance, and you've already put away £20,000, you can add money to their account to make sure it's put to use.

Higher rate

Don't forget, this option isn't exclusive to married couples, but unmarried couples parting ways might struggle to recover these funds.

£50,271 to £125,140

40%

Once you've maximized your ISA allowance, most other savings and investments will be fair game for the taxman. However, married couples can take steps to share tax-free allowances between them.

Dividends: After the £500 annual dividend allowance, any dividend income above this threshold will be taxed. Married couples who have already maximized these allowances can reduce their overall tax bill by transferring assets to their partner.
Capital Gains: Once you exceed the £3,000 capital gains allowance, any gains made upon selling an asset will be taxed. Again, transferring assets can help lower your overall tax bill.
Savings Income: Once you start earning more than £1,000 in interest on your savings, you'll need to pay tax on any additional interest earned. Married couples can take advantage of each other's personal savings allowance to minimize taxes.

Additional rate

The Annual Marriage Boost: A Tax Break for Loving Couples

Over £125,140

Most people in the UK have a personal allowance, which means you don't pay income tax until you start earning £12,570. But HMRC rewards the institution of marriage through the tax system.

45%

If one partner has an income between £12,570 and £50,270, they can transfer some of their personal allowance to their spouse, maximizing their combined tax-free earnings. The maximum transferable amount is £1,260.

The Real Estate Game: Who Gets the Room?

If you and your partner own a buy-to-let property, and you're on different income tax thresholds, it makes sense to transfer the property to the name of the lowest earner. That way, they can put their personal allowance towards any income earned on the house, and the remaining income will be subject to a lower rate of tax.

Inheritance Tax: Unloved but Understood

Inheritance tax (IHT) isn't a fan favorite, but it can be particularly costly for unmarried couples sharing a home. Unmarried couples can pass on assets of up to £325,000 without IHT, but any assets exceeding this limit could be subject to 40% IHT.

Married couples, on the other hand, can use two nil-rate bands (currently £325,000 each), and two residence nil-rate bands (currently £175,000 each), allowing them to pass on up to £1 million tax-free if they leave their main home to direct descendants. This can significantly reduce IHT liabilities.

Solid Steps for the Non-Believers

If marriage still isn't your thing, there are some important legal protections you can put in place instead:

Writing a will can help protect your partner's interests once you're gone.
Putting a cohabitation agreement in place can ensure you and your partner are treated fairly in the event of a separation or death.
In light of the upcoming tax changes, considering marriage might provide significant financial advantages, especially in regards to personal allowance, pensions, ISA allowances, dividends, and capital gains.
Married couples can maximize their Individual Savings Account (ISA) allowance by effectively doubling it to £40,000, allowing them to make better use of their savings and investments.
Married couples can also share tax-free allowances for dividends, capital gains, and savings income, reducing their overall tax bill and strengthening their financial position.
In terms of lifestyle, marriage not only offers emotional benefits but also practical financial advantages that could impact personal-finance, investing, and relationships, especially in regard to inheritance tax, property ownership, and legal protections for co-habiting couples.