Five tax and financial benefits of being married

Loving your partner might be reason enough to get married – but there are also a number of financial upsides to becoming a spouse or civil partner.

. The latest is an exemption from the Government’s inheritance tax raid on private pensions, announced in October’s Budget, which will begin in 2027.

However, with 41pc of couples getting divorced, according to figures from the Office for National Statistics, it’s also worth weighing up the risks, as a split can come with a hefty hit to your finances.

Telegraph Money explains the financial benefits of being married or in a civil partnership, and what the costs could be if the relationship doesn’t work out.

Five financial benefits of marriage

We’ve outlined the following tax and financial pros of being married:

1. Marriage allowance tax breaks
2. Inheritance tax advantages
3. Boosted savings and capital gains allowances
4. Extra state pension entitlements
5. Protection from intestacy rules

1) Marriage allowance tax breaks

If one partner in the couple earns less than the tax-free personal allowance (currently £12,570), they can transfer 10pc of it – £1,260 – to their spouse, as long as they are a basic-rate taxpayer earning less than £50,270.

for the financial year, according to RBC Brewin Dolphin. The basic-rate taxpayer essentially has their personal allowance boosted to £13,830, meaning they can keep more of their earnings.

This is also an allowance you can backdate for up to four tax years, meaning you could potentially get a rebate of more than £1,250.

One thing to note: if the lower-earning partner has an income of less than £12,570 but more than £11,310, they could end up having to pay income tax, due to having reduced their own tax-free allowance. With this in mind, you should weigh up whether setting up the allowance will be financially worth it.

2) Inheritance tax advantages

Perhaps the most powerful financial perk of being married or in a civil partnership are the inheritance tax breaks:

• A single person can pass on £325,000 tax-free but a widow or widower can pass on £500,000
• Tax-free amount rises to £1m for couples if a family home is passed onto children or grandchildren
• You can inherit a private pension from a spouse without paying inheritance tax on it
• Extra Isa allowance for widows and widowers

. This is known as the “spousal exemption”.

If the first person to die has not used some or any of their nil-rate band (£325,000) or residence nil-rate band (£175,000) allowances, these can also be transferred on death.

Shaun Moore, the tax and financial planning expert at Quilter, says this has the effect of creating an allowance of £1m for the couple collectively if the allowances weren’t used after the first death.

However, he says the residence nil-rate band is “tapered” if the overall net value of the estate on death exceeds £2m. If this is the case, the tax-free amount will reduce at a rate of £1 for every £2 over the £2m threshold.

These benefits will soon become even more valuable due to the Government’s October Budget, in which it was announced that private pensions that form part of an estate will fall under the scope of inheritance tax from 2027.

Anybody inheriting a private pension from their spouse upon their death will not pay inheritance tax on it, even after the changes take affect.

.

This means a surviving spouse can inherit the entirety of their loved one’s Isa savings by boosting their own Isa allowance – in addition to being able to save up to £20,000 of their usual allowance. The money can therefore continue to be shielded from the likes of income and capital gains tax.

If a couple are not married – even if they live together and have children together – they won’t be able to use the exemption. So, if one partner were to leave their estate to the other when they die, there could be a sizable inheritance tax bill today, charged at 40pc of anything over the available tax-free allowances.

3) Boosted savings and capital gains allowances

which can in turn save on capital gains tax.

This could be a good idea if one of the couple is a higher-rate taxpayer, but their spouse does not pay tax – for example, if they do not work or earn less than the personal allowance of £12,570. As capital gains tax can vary depending on your tax band, it makes sense to transfer assets to the lower earner, according to RBC Brewin Dolphin.

can show help you the difference in how much CGT you might stand to pay.

In the case of holding shares, making a transfer to a lower-earning spouse can be beneficial even if you don’t sell the assets, as any income produced could also be taxed at a lower income tax rate.

There’s a similar benefit available when it comes to organising your savings. Cash held outside of an Isa is subject to income tax, but the tax-free allowance you get depends on your income tax band.

is £1,000 for basic-rate taxpayers, reducing to £500 for those who pay higher-rate tax. Additional-rate taxpayers don’t have any tax-free allowance for their savings interest.

Those with lower incomes can also benefit from the starting rate for savings; if you earn less than the personal allowance this allows you to earn an additional £5,000 in tax-free savings interest. The allowance reduces by £1 for each £1 you earn over the £12,570 threshold, meaning it reduces to £0 by the time you earn £17,570.

If one spouse is in a lower tax band than the other, then it makes sense to transfer more of the cash savings to them, so more of the couple’s savings interest can remain free from tax.

4) Extra state pension entitlements

you can usually have some form of your pension paid out to your spouse when you die.

For couples who aren’t married or in a civil partnership, the inflation-linked guaranteed income offered by the pension could stop if the surviving spouse is not classified as a dependent.

Mr Moore says it is worth digging around to find out what your employer’s pension offers.

if an employee is survived by a married or civil partner, while death in service payments can also be offered.

“If you are not married, or you have not filled out a nomination form, then these are often paid to the estate, and thus under intestacy rules unmarried partners may not be entitled to any of it.

“If you are in retirement and your spouse or civil partner dies you may also be entitled to inherit an extra payment on top of your own state pension. The rules around this can be complicated, and depend on your state pension age, so it is best to contact HMRC to see what you may be eligible for.”

5) Protection from intestacy rules

Having a will is recommended to avoid problems with your wealth being passed to your family and friends, but if there is no will “intestacy rules” will apply. These favour married or civil partners.

The rules state that married or civil partners with children will receive all personal property and belongings of the deceased, as well as the first £270,000 of the estate. Anything above this will be split, half to the spouse, and half to the children.

If the couple does not have children, the spouse receives the entire estate.

However, if the couple is unmarried, intestacy rules will cut out the partner, instead splitting the estate just among the children.

If there are no children, the estate will move to the next-closest members of the deceased’s family – and if there is no one suitable, the estate will go to the crown.

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Finances for non-married couples

Couples who are not married miss out on lots of protections.

A lower-earning partner in a non-married couple could feel they have lost out because they are not entitled to their partner’s assets, said Mr Moore.

Unmarried couples do not share the rights, responsibilities, protections or status held by married couples and civil partners, regardless of whether they live together.

If you live with your partner, you retain your individual assets when you separate regardless of your financial situation, or theirs.

with the starting point being a 50/50 split.

Mr Kambo said: “Paying solicitors can be very costly and erode the total value of what’s left over after a divorce is finalised, which can be a challenge to predict – particularly if the marriage has deteriorated and things have turned sour.

“If you weren’t married or in a civil partnership, you’ll have to share the costs of looking after any children you have together, but you don’t have to support each other financially when you separate.”

based on the terms of the mortgage.

There’s also the issue of pensions. If you are not married to or do not have a civil partnership with your partner, you could end up losing up to 40pc of your private pension to inheritance tax should you leave it to them if you die from 2027 onwards. Mr Moore warns that these crucial assets often get ignored by lawyers.

He said: “Dividing pensions equitably is of vital importance to avoid later life poverty, particularly if one person has not had the same opportunity to build a large enough pension pot of their own and will be unlikely to have enough time to save adequately for their future.

“This is most often the case for women who took time out of work while they had young children.”

On this topic, it’s worth being sure to change the pensions death benefit nomination form following a divorce – otherwise, your pension funds could still go to your former spouse when you die, which may not fit with your wishes.

Do the costs of divorce outweigh the benefits of marriage?

Whether the costs of divorce are bigger than the perks of marriage depends on your circumstances.

with the average cost of legal fees and lifestyle costs at £14,561, according to Money Helper.

Ammo Kambo, financial planner at wealth manager RBC Brewin Dolphin, said: “In theory, with a clear-cut situation with no complications, you could lose less had you not been married, as a large part of divorce costs go on legal fees.

“If you were not married but lived together, each party would need to agree how their possessions should be divided.

“If this was not possible, legal advice or mediation could be required, at additional cost.”

Mr Moore agreed that the cost of splitting up can be steeper for married couples.

He said: “For those who are married, a divorce generally impacts wider assets, such as pensions, which would likely be divided between the two and could result in the separation ‘costing’ more.

“There is an inherent bias that divorce ‘costs’ men more than women, but this is largely as a result of women often taking the financial hit when it comes to childcare responsibilities. The division of assets such as pensions helps to keep things fair.”

FAQs

Does getting married affect my will?

Getting married can fundamentally affect any will made before you got hitched.

In England and Wales, marriage can render existing wills automatically void, meaning any wishes or instructions contained in the will would not be considered when you die.

as soon after getting married as possible.

If you die with only a void will in place, intestacy rules are likely to apply.

Divorce can also have a big effect on your will. Your ex-spouse will be treated as though they pre-deceased you, and will therefore not be eligible to be a beneficiary, trustee or executor – even if your wishes have remained the same. Again, you would need to update your will to include the details of the divorce in order to change these wishes.

Do these marriage benefits all apply to civil partnerships?

Yes, all of the tax benefits outlined here work in the same way for those in a civil partnership as they do for married couples.

For marriage allowance, the same eligibility criteria apply, and the processes to set up the allowance are the same – it is still referred to as “marriage allowance” even if you are in a civil partnership.

Are married parents financially better for children?

While parents are married, there’s not a large financial benefit for children; it may bring more of a sense of security, and the tax breaks you can get while married may mean the household can benefit from having a little more money.

Having married parents can be more beneficial for children in later life. The children can benefit as heirs from the combined IHT allowances for married couples.

Where children are concerned, having married parents tends to make the biggest difference when it comes to how the children are provided for should the parents divorce in regards to child maintenance.

While parents should pay towards the upkeep of their children regardless of whether they are married or have ever even been in a relationship with the other parent, if a couple is unmarried child maintenance payment agreements are not enforceable by law unless the decision goes through the Child Maintenance Service system.

For married parents, child maintenance can be set out as part of the court’s divorce settlement agreement, meaning it is legally enforceable, ensuring the child’s main carer will receive adequate money for their upkeep.

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Why is marriage important financially?

Getting married links two people together in law, and financially. Once married, spouses have a legal right to each other’s wealth should they divorce; if one spouse is financially dependent on the other then they have an obligation to provide for them.

It also ties your finances together, which can have tax benefits.

Do I pay less tax if married?

There are ways for spouses or civil partners to organise their finances to reduce tax, including setting up the marriage allowance, transferring assets so that both people’s CGT allowances can be used, and having the lower earner hold savings and assets.

However, none of this is automatic, and it will depend on both partners’ earnings.

Do I need to tell HMRC if I get married?

Yes, you should let HMRC know of any change in your circumstances, including getting married or entering a civil partnership. Should you want to benefit from any of the tax breaks we’ve detailed in this guide, HMRC will need to know your relationship status in order to calculate the correct amount of tax.

– you’ll need to login to your Government Gateway account, and make sure you have your National Insurance details to hand.

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