Marriage and tax make a lovely couple – Birmingham Post article 25.11.2021

It pays to be married … and just over half the UK population are.

Of course, there are many emotional and practical issues to take into account first, but, from a purely financial consideration, saying ‘I do’ is a no brainer.

Yet, according to the Office for National Statistics, tying the knot is slowly declining, given 69.2 per cent of couples aged 16 to 29 choose to cohabit.

Though it is seldom acknowledged, getting hitched or entering a civil partnership is one of the best pieces of tax planning you can make.

There are a number of tax savings available to married couples and it tends to make financial decision-making much simpler.

Here are some of the benefits:

Income Tax – marriage allowance is paid to couples where one partner is a basic-rate taxpayer and the other does not earn enough to pay tax. It enables you to transfer £1,260 of your personal allowance to your husband, wife or civil partner, producing an overall tax saving of up to £252. In addition, it is possible for married couples to reduce the income tax they pay on savings, investments or rental property. If one of you is on a lower rate of tax than the other then ownership of assets can be switched around accordingly.

Capital Gains Tax – take advantage of tax-free transfers. Pooling assets mean you double the amount you can make – £24,600 – before CGT is due.

Inheritance Tax – Everyone has an allowance of £325,000. In addition, if you leave the family home to your children or grandchildren, you each have another £175,000 on top, known as the “residence nil-rate band”. So, a married couple have a combined total of £1 million to utilise before HM Revenue & Customs come calling – a significant advantage compared to the unmarried because assets can be combined regardless of who owned them. However, the real benefit is passing all assets to the surviving spouse free of IHT on the death of the first. This allows much greater flexibility with estate planning and mitigating IHT.

Pensions – under final salary pensions, if your partner is retired when they die, you typically inherit at least 50 per cent of what they were receiving. If they are struck down while still working you are normally entitled to a lump sum.

If your spouse has purchased a joint-life annuity, this will continue to pay a guaranteed (if reduced) income to you should your loved-one go before you.

There are some circumstances where you can inherit parts of your spouse’s state pension. It depends on the number of years they have paid national insurance. The longer they’ve worked, the more you’re likely to get.

And there are opportunities when saving into pensions. If one spouse is a higher-rate taxpayer and the other a basic-rate taxpayer, it could make financial sense for the lower-rated partner to pay into a pension in their spouse’s name. This will double the tax relief, resulting in a much larger final pension pot.

Estate planning – contrary to popular belief, so-called common law spouses do not have any automatic right to inherit, unless named in the will.

Mortgages – you are able to combine savings and income, meaning you can raise a larger deposit, while opting for a joint mortgage should get you a better deal with lower interest rates.

ISA – you can pass on its tax-free status to your spouse when you die.

Living together will always mean a degree of shared financial responsibility – from simply sharing out the costs of housekeeping to having fully combined finances. So, why not commit and enjoy a tax perk ‘wedding present’?