This Valentine’s Day, we take a look at the financial and tax benefits of marriage and if it’s still worth saying ‘I do’.

If you read the latest Office for National Statistics (ONS) release stating that the total number of marriages in 2018 fell for the third year running (source 1). You’d be forgiven for thinking Valentine’s Day might have  run its course and that happy ever afters are only found in fairy tales and films.

But, don’t cancel the roses and romance too soon.

The ONS also estimates that more couples than ever are co-habiting (source 2) rather than marrying. With the cost of the average wedding now over £30,000 (source 3), it’s considered that couples are investing their savings into the housing market rather than cakes and veils.

But there are financial benefits to marriage, even if you do spend more on flowers:

1. Income tax savings

If one partner earns below the Personal Allowance (£12,570 for 2021/22), they can transfer up to 10% of their Personal Allowance to their partner (who must be a basic rate taxpayer). This is worth up to £250 per year and can be backdated for three tax years.

2. Capital Gains Tax savings

Typically, if you give away an asset to someone else, HMRC will treat you as if you sold it for market value. If the asset increased in value since you bought it, the gain may be liable to Capital Gains Tax (CGT).

Married couples, however, can transfer assets between themselves without any tax implications; the asset’s new owner is liable for the tax.

For example, Reena is a higher rate taxpayer, and she has some shares which have grown a lot in value since she bought them. The growth would be liable to CGT at 20% if she sold the shares. Her husband Vijay is a basic rate taxpayer. Reena can transfer her shares to Vijay without incurring CGT, and he can sell them, paying CGT at the lower rate of 10%.

Everyone also has a CGT exemption allowance (gains up to £12,300 for 2021/22 are taxed at 0%) so transferring assets between married couples means having use of two allowances, so Reena could decide to only gift some of her shares to take advantage of that.

3. Inheritance Tax savings

Leaving a legacy over the value of your Inheritance Tax allowances also leaves the beneficiary with a tax bill of up to 40%.  There’s no such thing as ‘common law spouse’, so even if a couple has been living together for many years, the survivor would pay Inheritance Tax on anything they inherit.

Married couples aren’t liable to Inheritance Tax on anything they inherit from each other, and also have the ability to inherit any unused Inheritance allowances from there deceased spouse so that nothing is wasted.

Interestingly, the ONS report found that despite overall marriage rates declining, more people over 65 are choosing to marry than in previous years (source 1). The Inheritance Tax exemption for married couples is particularly powerful for these older couples, who have already built wealth separately.

What next?

At CBW, we can advise on making the most out of your income, assets and tax allowances, tailoring our advice to you as a family unit.

Show yourself a little love this Valentine’s Day and contact Emma Sands to see how we can help you.

Sources:

1 https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/marriagecohabitationandcivilpartnerships/bulletins/marriagesinenglandandwalesprovisional/2018
2 https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/datasets/populationestimatesbymaritalstatusandlivingarrangements
3 https://www.hitched.co.uk/wedding-planning/organising-and-planning/the-average-wedding-cost-in-the-uk-revealed/