Five financial benefits of marriage
Most of us marry for love, but typing the knot can also bring a number of financial planning advantages.
Money-saving tax breaks, better pensions and even cheaper insurance are among the perks you can enjoy if you become a spouse or civil partner.
These benefits mean affairs of the heart can easily become part of your financial planning. "We do sometimes recommend that couples get married," says Derek Evans, director of Juno Wealth Management. "People think they get additional rights if they cohabit, but this isn't the case. When it comes to your finances, it really can be worth getting married."
1. Less income tax
The government is proposing to give marriage its financial seal of approval with a married person's tax break. Rather than rewarding all married people with a higher income tax allowance, the marriage transferable tax allowance allows married couples and civil partners to transfer up to £1,000 of their personal income tax allowance to their partner.
The break, which is due to be introduced in April 2015, will only be available where neither person is a higher-rate taxpayer.
Alison Hill, director at PricewaterhouseCoopers, says it will only apply in limited circumstances. "To see any benefit, both need to be basic rate taxpayers with one earning less than the personal allowance," she explains. "Where this is the case and they transfer the full £1,000, it will save them £200 in tax each year."
Some married people already benefit from an income tax break. If either person was born before April 1935 they can take advantage of the married couple's personal allowance.
How much additional allowance they'll receive depends on the income level of the claimant, which is the husband for couples married before 5 December 2005, and the higher earner for more recent marriages.
The maximum allowance is £7,915 in the 2013/14 tax year (£8,165 in 2014/15), but this reduces at the rate of £1 for every £2 of income the claimant has above £26,100, until it hits the minimum allowance of £3,040. As the tax relief is applied at 10%, this means they'll benefit by between £304 and £791.50 this tax year.
2. Smarter investment
Even if you don't qualify for an enhancement on the income tax front, you may be able to take advantage of capital gains tax (CGT) rules that benefit those who tie the knot.
CGT is payable at the rate of 18%, or 28% if your income pushes you into the higher rate tax band, on any profits you make in excess of the annual allowance (£10,900 in 2013/14; £11,000 in 2014/15). This applies to items you sell but also to ones you give away, which are deemed as having been sold at their market value for tax purposes.
There is an exception though, as Michael Owen, director of Brooks Macdonald Financial Consulting, explains: "Married couples and civil partners can transfer assets to each other without triggering a CGT bill. This means they can take advantage of both of their annual allowances to reduce a tax liability."
As an example if someone made a £20,000 profit on a portfolio of shares, if they were a basic rate taxpayer they would be looking at a CGT bill of £1,683 (20,000 - 10,900 = 9,100 x 18%). But if they transferred half of the gain to their spouse, there would be no tax to pay.
3. Lower risk insurance
Anyone who can tick the married box can also reap savings on their insurance. Although factors such as your health and age are more important than marital status for life assurance and critical illness, when it comes to driving habits, your lifelong commitment to another will take pounds off your premium.
The amount you'll save will vary, but as an example Confused.com found that the average cost of motor insurance for a female driver insured with their spouse was £406, compared to £841 if they were insured as a singleton.
Hugh Kenyon, pricing director at LV= car insurance, says this is because couples and families tend to make fewer and less expensive claims than their single counterparts. "This is particularly true for households with more than one car, where they make fewer trips per vehicle," he adds. "It may also be influenced by lifestyle choices, for example many accidents happen after 10pm when those with young children are more likely to be at home than on the roads."
4. Pension perks
Although pension rules have been dragged into the 21st century, with many schemes recognising cohabiting partners alongside spouses and civil partners, there are some areas where being married is still a definite advantage.
As an example, although a spouse will be eligible for any widow's pension if their husband or wife dies, this doesn't happen automatically when the couple aren't married.
"Many [schemes] will recognise the rights of unmarried couples, but there are often conditions that must be met before they will receive a contingent pension," explains Owen. "If there's any doubt, check the scheme rules."
Typically these conditions require the couple to have been financially dependent on one another and living as if married.
Additionally, and most commonly the deal breaker, they also need to be free to marry, which would rule out anyone who hadn't bothered to get divorced from a previous spouse.
But where it's particularly advantageous to be married or in a civil partnership is if your partner uses drawdown to access their pension. Owen explains: "A pension fund can pass tax-free to anyone at all before retirement but, once income is being drawn from it, it will be subject to a tax charge of 55% on death unless it passes to a surviving spouse or civil partner."
5. Inheritance tax incentive
Ironically, the biggest financial benefit of being married probably comes when one of you dies. "Everyone has an inheritance tax (IHT) allowance of £325,000 (frozen up to and including 2014/15), but married couples and civil partners can pass any assets to each other without a tax charge," says Evans.
In addition, as it's possible to transfer the first deceased's nil rate band to the surviving spouse, IHT can be deferred until the second death. At that point, double the nil rate band at the time will be available.
These rules can make a significant difference to married couples' financial planning. For example, take a couple living in a jointly owned property worth £750,000. If they are married and one dies, the deceased's stake in the home will automatically go to the surviving spouse without any tax to pay.
But, if they're not married, the value of the deceased's share of the property will count towards his or her estate for IHT purposes. In this example, and discounting any other assets, this would generate an IHT bill of £20,000 (£375,000 - £325,000 = £50,000 x 40%).
Hill says that these rules can be particularly valuable to married couples, giving them the reassurance that the surviving spouse won't be hit with an IHT bill but also, as a result of the potential for a double nil rate band on second death, greater flexibility around IHT planning.
She adds: "Make sure there are wills in place. Although the intestacy rules do recognise the surviving spouse, without a will there's no guarantee that they'll inherit all of the deceased's assets."
And if the financial benefits have swung it and you've decided to get hitched, don't forget that your wedding can also help others with their IHT planning. Gifts for weddings and civil partnerships are exempt from IHT so, providing your guests stick within the limits (£5,000 for parents, £2,500 for grandparents and great grandparents and £1,000 for everyone else), it will help them reduce the size of their future IHT bills too.
This feature was written for our sister publication Money Observer
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.