Are there financial advantages to being married?
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My partner and I have been together for more than 20 years but have never bothered to get married. We’re in our sixties now and planning ahead. I retire next year and my partner retires in a couple of years. I believe there are financial advantages to being married, especially in later life. Can you explain this, please?
Matthew Hinchliffe of Smith & Pinching responds:
Marriage can indeed be a financial advantage for a couple, particularly if your combined assets could give an Inheritance Tax (IHT) liability later on. The various rules and allowances below are available to couples who are married or in a civil partnership, but not to cohabiting partners.
Anything you leave on your death to a spouse or civil partner is exempt from IHT. In addition, any unused IHT exemption (the standard Nil Rate Band and the Residence Nil Rate Band) can be passed on to a spouse or civil partner upon the death of the first partner, effectively doubling their overall exemption, if everything is left to the second partner upon the first partner’s death. This gives the second partner to die a total potential exemption of up to £1 million. The actual exemption will depend on your family circumstances – whether you have children, for example – and the size of your estate: there’s a reduction in the Residence Nil Rate Band for estates worth more than £2 million.
If you have ISAs in your estate, the surviving partner has another benefit if married or in a civil partnership. There is an additional one-off ISA allowance that can be claimed to the value of the deceased partner’s ISA holdings. Being married is also an advantage if you transfer assets between you during your lifetime, as there are IHT and Capital Gains Tax exemptions that apply to transfers between spouses or civil partners.
There’s a potential Income Tax benefit too: if one of you is a basic rate taxpayer and the other is a non-taxpayer (which may be the case perhaps when you retire, if not now), the non-taxpayer can transfer up to 10pc of their Personal Allowance to the basic rate taxpayer, reducing the overall amount of tax that you pay as a couple. This is known as the Marriage Allowance.
Finally, it may be worth checking the terms of your pension. Some pension death benefits can be left to any heir, but other schemes limit death benefits to a spouse or civil partner.
In the end, the degree to which you benefit if you were to get married will depend entirely on your circumstances. Before you pop the question, may I suggest that you get independent financial advice to evaluate the benefits and to put together a plan for your future.
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Any opinions expressed do not constitute advice. References to taxation are based on our understanding of current legislation and HMRC practice, both of which may change.
For more information, please visit www.smith-pinching.co.uk