Your wedding day or civil partnership ceremony is one of the most memorable days of your life and it marks a new chapter for you and your partner.
As you embark on your journey together and start planning your future, you will likely be thinking about your financial plan. The good news is there are various financial benefits of being married or in a civil partnership that could help you manage your shared wealth more efficiently.
Here are five financial benefits of being married or in a civil partnership.
1. Potentially pay less Income Tax
Depending on your spouse or civil partner’s earnings, you may be able to reduce the Income Tax you pay by using the Marriage Allowance.
This tax rule lets your spouse or civil partner transfer £1,260 of their Personal Allowance to you if they do not pay Income Tax.
Doing this means that less of your earnings are taxed and you could reduce your tax bill by up to £252 in 2023/2024. Additionally, you may be able to backdate it for up to four years, provided both you and your spouse or civil partner meet the criteria for each year.
This is an easy way for married couples and those in civil partnerships to potentially reduce their tax burden, but many people are not taking advantage of it. Indeed, Money Week reports that more than 2 million eligible couples may not be claiming the allowance, so you may want to check if you could benefit.
Your spouse or civil partner may be able to transfer part of their Personal Allowance to you if:
- Their income is less than £12,570 (in the 2023/2024 tax year) so they do not pay Income Tax
- You pay basic-rate tax – this means your income will be between £12,571 and £50,270 in 2023/2024. Your spouse or partner cannot transfer part of their Personal Allowance to you if you pay higher- or additional-rate tax.
Your spouse or civil partner can apply by contacting HM Revenue & Customs (HMRC), and it must be the person that does not pay Income Tax that applies to transfer part of their allowance.
If one or both of you were born before 6 April 1935, you may qualify for the Married Couple’s Allowance (MCA) instead, which offers tax relief at a higher rate.
2. Reduce your Capital Gains Tax bill
On 6 April 2023, the annual exempt amount for Capital Gains Tax (CGT) fell to £6,000. This means that when selling certain assets, such as stocks and shares not held in an ISA, or a second home, you may be taxed on any profits over £6,000.
This threshold is set to drop again to £3,000 in April 2024, so it is more likely that CGT may affect you in the future.
Fortunately, when you hold assets jointly with your spouse or civil partner, you benefit from both of your annual exempt amounts, meaning that you could potentially reduce your CGT bill.
However, the rules can be complicated, and CGT could still affect you in some cases. So, you may want to seek advice to ensure that you are being as tax-efficient as possible.
3. Help your family reduce Inheritance Tax
You likely want to make sure that your loved ones are looked after when you are gone, but Inheritance Tax (IHT) can make that more difficult.
Luckily, being married often makes IHT planning easier. That’s because the IHT rules for married couples or people in civil partnerships differ from unmarried couples in two significant ways:
- Usually, your spouse or civil partner can inherit your entire estate without paying any IHT on it.
- You can pass on any unused “nil-rate band” – £325,000 per person in 2023/2024 – to your spouse or civil partner.
You may also benefit from the “residence nil-rate band” when passing your main residence on to your children or grandchildren. This is £175,000 per person and you can pass on any unused allowances in the same way as the standard nil-rate band.
This means that, as a couple, you can potentially pass on up to £1 million without IHT.
4. Make sure your assets pass to the right person
Putting a will in place to determine who your assets go to after you die is very important. Without this crucial protection in place, your home and other assets may not go to the person that you intended.
If you die without a will, or your will is invalid for some reason, your assets will be divided up according to the rules of intestacy.
The good news is, if you are married or in a civil partnership, the decisions made about your assets may be more likely to align with your own wishes. This is because, ordinarily, under the rules of intestacy your spouse or civil partner will inherit much of your estate.
The amount of your estate that they inherit depends on whether you have surviving children or grandchildren. If you do, and the total value of your estate is more than £270,000, your spouse or civil partner will inherit:
- All of your personal property
- The first £270,000 of the estate
- Half of the remaining estate.
The remainder of your assets will then normally be divided between your children and grandchildren, with all descendants – including legally adopted children and children from different relationships – getting an equal share.
But if you do not have any surviving descendants, your spouse or civil partner will likely inherit your entire estate. So, the rules of intestacy may help to ensure that your partner inherits a significant portion of your estate, if not all of it.
Conversely, this is not usually the case for cohabiting couples because only spouses, civil partners, or close relatives can automatically inherit under the rules of intestacy. As a result, if you’re not married when you die, your assets could go to a relative rather than your partner, even if that was not your wish.
5. Inherit part of your spouse or civil partner’s State Pension
When a spouse or civil partner passes away, you may be able to inherit a portion of their State Pension. This can help you maintain your income in retirement, so you do not have to make changes to your lifestyle.
You may be eligible if you married or entered a civil partnership before 6 April 2016 and your spouse or civil partner either:
- Reached State Pension Age before 6 April 2016
- Died before 6 April 2016 but would have reached State Pension Age on or after that date.
Additionally, if you are not already receiving the maximum State Pension and your spouse or civil partner built up enough National Insurance contributions (NICs), your basic State Pension may also be topped up.
If you reach State Pension Age after 6 April 2016 you will be subject to different rules.
Unfortunately, cohabiting couples cannot inherit State Pensions from their partner, which means they could see a sudden decrease in their overall income when one of them passes away.
Get in touch
If you are married or in a civil partnership and you want to explore the financial benefits and how you may use your joint tax allowances and exemptions, please get in touch.
Email firstname.lastname@example.org or contact your adviser on 020 3828 8100.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.