Why getting married could have more financial benefits than you think02/08/2021
Romantic liaisons may be constrained this year, but with Valentine’s Day falling on Sunday, thousands of people are expected to pop the question and hope for a less-than-socially-distanced wedding after Britain’s Covid vaccination programme kicks in.
A new study out today, from HyperJar and MoneyMagpie, shows that the pandemic has ‘turbocharged’ many couples’ relationships, with 9% getting engaged faster and 11% planning to get married sooner because they have been locked down together.
While Valentine’s Day focuses on the more emotional side of relationships and marriage, there are financial implications to tying the knot as well.
‘Romance can cost a fortune, especially at this time of year, but marriage can pay,’ says Sarah Coles, at Hargreaves Lansdown. ‘If you end up tying the knot or entering into a civil partnership, there are lots of financial rules you can take advantage of, and save a fortune.’
Here are some of the reasons why getting down on one knee might be good for your wallet (once you’ve paid off the wedding costs).
‘All that I have I share with you’ means different things to different couples, but it’s definitely better to share your tax allowance than your toothbrush.
The Marriage Allowance (which can also be used by those in civil partnerships) allows a spouse who isn’t using all of their personal tax allowance (£12,500 that everyone is entitled to earn without paying any tax) to allocate 10% of it to their husband or wife.
Only couples where the higher earner takes home under £50,000, and so pays basic rate tax, are eligible.
If you are in this position, the Marriage Allowance can save you £250 a year, and you can backdate this too, all the way back to 2016 if you have been in this position since then. If you think you might be entitled to marriage allowance, you need to contact the taxman yourself to check.
Married couples and those in civil partnerships are able to pass assets between them without HMRC deciding that there is a tax bill to pay. This can ensure that you use both of your personal allowances for income and capital gains tax to pay as little as possible.
Sarah, at Hargreaves Lansdown, explains that, as well as the personal allowance that means you don’t pay tax on the first slice of income, you also have a savings allowance, dividend allowance and capital gains tax allowance, which means you don’t pay tax on the first slice of savings interest, dividend payments or profit from selling investments.
‘You can share your investments and savings between you, so you both take full advantage of all these allowances. Any extra can be held by the lowest taxpayer, so you pay the absolute minimum in tax,’ she says.
‘If an unmarried couple tried to do this, passing ownership to their partner could actually trigger a tax bill.’
Unromantic as this might seem during the early stage of a relationship, the marriage vows we make are ‘until death us do part’, and some of the biggest financial perks of married life aren’t felt by us, but by our descendants, who may benefit from a lower inheritance tax bill if their parents are married.
This is because married couples, and those in civil partnerships, can leave unlimited wealth to their spouse or civil partner without triggering an inheritance tax bill, while your spouse can also inherit your unused £325,000 tax-free allowance and £175,000 residence nil rate band to allow them to pass on more wealth tax free when they die.
Inheritance tax is levied at a hefty 40%, so can cut into your legacy for your children considerably. Sean McCann, chartered financial planner at NFU Mutual, also points out that, because the tax has to be paid within six months of the death and before the assets can be passed to the beneficiaries, it can leave an unmarried but bereaved member of a couple in a difficult situation.
‘For cohabiting couples, if your partner leaves you chargeable assets valued at more than £325,000, you will pay 40% in tax on the excess,’ he says. ‘This often leaves the surviving partner having to deal with a large, unexpected tax bill, when they are at their most vulnerable.’
Jason Hollands, managing director at investment group Tilney Bestinvest adds that if you make gifts to your spouse or civil partner during your lifetime, they don’t count within the seven-year rule for inheritance tax purposes.
‘Where an individual makes a gift of capital/assets to another individual during their lifetime –perhaps a car or high value piece of jewellry – it may be classed as a Potentially Exempt Transfer and, should death occur within seven years from the date of the gift, the beneficiary may be liable to Inheritance tax, a nasty surprise if they don’t have the resources to pay.However, gifts between spouses or civil partners are not Potentially Exempt Transfers. They’re ignored for Inheritance Tax purposes altogether.’
Other bereavement protection
There are other differences on death if a spouse or civil partner dies, rather than an unmarried partner, even when there are children involved in the relationship.
If you die without a will, your spouse or civil partner will receive all of your estate, or if you have children, your spouse or civil partner receives the first £270,000 of the estate and all personal possessions.
If there are children, they receive half of the rest. If you are unmarried and die without a will making provision for the surviving partner then the survivor has no automatic right to an inheritance from the estate. Married couples, and those in civil partnerships, are also automatically entitled to benefits from their late spouse’s pension if they die.
Cohabiting couples are not automatically entitled to this, unless an ‘Expression of Wishes’ form is kept up to date.
Bereavement Support payments, which are payable to those whose partner dies under state pension age are also only currently available to married couples or civil partners.
Bereavement Support is a one-off payment of up to £3,500, followed by £350 a month for 18 months if you are a parent of an under 18 or pregnant. If not, you will receive the standard rate which is an initial lump-sum payment of £2,500 followed by up to 18 monthly instalments of £100.
Although the government has said that there is a plan to pay cohabiting couples Bereavement Support in future following a public consultation, this has not yet taken place.
Action for cohabitees
For those who don’t want to get married, there are steps to ensure you suffer less financially. These include keeping your will and your partner’s up to date so that any unexpected tragedy does not lead to a partner being disinherited.
Filling in an ‘Expression of Wishes’ form so that your pension goes to your partner will also ensure that he or she doesn’t lose out.
So, if you’re thinking about having a ‘turbocharged wedding’, understanding the benefits available to married couples can help you to ensure your finances are stronger and work for your relationship.
What happens if you break up?
‘The one potential spanner in the works is that not all marriages last forever. Not only is divorce expensive, but if you’ve shared the assets out it can be complicated, too, especially if one of you starts spending everything before the divorce is finalised. Unfortunately, it’s impossible to know whether you’ll fall foul of this until it’s too late,’ says Sarah Coles, at Hargreaves Lansdown.
But if romance doesn’t last, there are steps you can take to ensure your divorce isn’t a financial disaster. Here, Emma Watson, Head of Financial Planning at Rathbone Investment Management gives her top tips to how to protect yourself financially.
Understand your budget
To keep a similar lifestyle post-settlement, it’s important to understand how much you require day to day. Monitoring your daily outgoings, major bills and any expected future expenditures (such as private school fees) will give a goal to aim for when negotiating.
Create a financial plan
Your financial settlement can be received in two ways, a lump sum or ongoing maintenance payments. While you may have budgeted and have a rough estimate of your future spending, it’s hard to know how much you’ll need in 15 years’ time.
A financial planner will also look at the lump sum option. Using a budgeting forecast, they will project spending alongside future interest rates and inflation to calculate how much cash will be needed in the long term.
Think about the pension
For many married couples, one partner may have a more substantial pension than the other. The assumption would be that this would be shared at the point of retirement. Therefore, a pension also needs to be considered as part of the financial settlement.
Consider what could happen to your family should your income fall to zero, or if you became ill or passed away. Putting the right insurance in place would help protect you and your family, and mitigate any risk should the unexpected happen.
When marriage doesn’t pay
While there are many financial benefits to being married, if your partner already owns a property you could fall foul of rules designed to target second- home owners.
This is because HMRC classes a married couple, or civil partners, as one unit for tax purposes.
If one of you owns a buy-to-let property, or decides to rent out their main home so that the two of you are buying a property together, you’ll have to pay the 3% extra stamp duty liable to those who are buying a second property, even if one of you has only one.
Together with the average £31,000 cost of a wedding, an extra 3% stamp duty on a £250,000 house could be an expensive disincentive to tying the knot, even given all of the financial benefits mentioned above.
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