As Prince Harry announces he is to marry American actress Megan Markle, we thought it may be a good time to revisit that widely held belief that marriage leaves you better off, at least tax-wise ....
… Although we are most definitely NOT suggesting the impending royal marriage is anything other than your everyday prince-meets-actress-prince asks-actress-to-marry-him love story! We’re just jumping shamelessly onto the story to make sure you have some of the answers you may need to help you make some major decisions decide on what’s best for you and your partner.
1. Inheritance Tax (IHT) considerations
Any husband or wife who chooses to leave certain assets in a trust to make sure their husband or wife has additional future income should the worst happen will be spared from IHT under the ‘spousal exemption’.
In addition married couples are also exempt from the ‘7 year rule’. This rule states that the recipients of any money or other assets left to them will have to pay tax on those assets if the person who transferred those assets was to die within 7 years. Married couples can transfer any assets between themselves at any time them without penalty.
Also, as a husband and wife aren’t subject to IHT rules, the IHT nil rate band will not have been used when the first person in the couple dies; this means that allowance can be transferred to the husband or wife who is still alive. That allowance can then be used to reduce the tax liability after their own death.
2. Making the most of your savings
If you have any ISAs, those accounts can be transferred to the surviving spouse post-mortem and the standard ISA allowance will not be lost. It would, however, if the recipient was a partner rather than a husband or wife.
3. Thinking about your children
Married couples automatically benefit from the ‘residence nil rate band’. More jargon but it basic ally means that if you have children (and these could be from your current or a previous relationship), they will be legally viewed as your ‘direct descendants’ which may give you/them an additional tax allowance of £100,000 (rising to £175,000 by 2020). This is not a status or an allowance they’ll be able to take advantage of if you aren’t married.
4. Consider your pension/s
Married couples enjoy an increase of £1000 in their state pension benefits should their husband or wife pass. This increase will depend on when their spouse’s pension entitlement began and on when they became eligible for a state pension.
However, unlike the previous 3 points, in certain circumstances these benefits are as applicable to civil partnerships as they are to married couples. If one spouse or partner earns less than £11,500 and their spouse or partner earns between £11,501 and £45,000, £1,150 of the lower earner’s personal tax allowance can be transferred to their spouse/partner.
However, we do need to stress that tax relief can never be the reason to get married; it is only a potential benefit.