If you’re heading to a wedding this weekend, you’re certainly not alone. According to the Office for National Statistics, the most popular month for getting married is August. But if all this activity makes you think of marriage, you should be aware this has implications for everything from your tax bill to your estate when you die.
For the most part, marriage is a positive move financially, but there are also some pitfalls that you need to know about.
Getting married certainly gives the poorer partner much more security. Unlike Scotland, concepts of “palimony” or “common-law” marriage have no meaning in England or Wales. Broadly speaking, this means that outside marriage, each partner has no claim on the property of the other in the event of a break-up.
So if you’re not married, and you’re not mentioned in your deceased partner’s will, you won’t have any automatic claim on your partner’s estate if he or she dies.
There are some exceptions to this rule, but if you’re married, the picture is completely different. Even if there’s no will, you will still inherit the first £250,000 of your spouse’s estate, and at least half of the remainder.
There are also some strong tax benefits to getting hitched. Married couples can transfer unlimited amounts of property between themselves, without having to pay capital gains tax (CGT). This can be a useful way to use up CGT allowances.
Married couples can also agree to transfer all their property to each other upon the death of one spouse. No matter the size of the estate, no inheritance tax is then due until the
other spouse dies. When this second death happens, only property and cash in excess of £650,000 is taxed at 40%. This benefit applies even if the surviving spouse subsequently remarries.
In the UK married couples are still treated as individuals when paying income taxes. This means that dual earner couples won’t end up paying more tax (as frequently happens under a combined system). There are also some pension upsides to getting married.
While many pension schemes give benefits (such as a lump-sumpayment or widow’s pension) to a cohabiting partner irrespective of marital status, some do not. And if you’ve entered a pension drawdown scheme before your death – where you withdraw an income from your pension pot – your surviving spouse can receive the remaining sum tax-free, even if income has already been taken from it.