Not everyone is keen on other people finding true love. In Tokyo the arrival of Valentine’s Day last week was marked not just by millions of gifts of chocolate passing from women to men (Japan is different), but also by some enthusiastic protesting against public displays of affection from a group calling themselves Kakuhido (the Revolutionary Alliance of Men that Women Find Unattractive)*.
All this smooching and showing off hurts the feelings of those who just aren’t that into it, Takayuki Akimoto, a spokesman for the group, told the press: “People like us who don’t find value in love are being oppressed by society.” Sounds silly, doesn’t it? But look at the way the UK treats the married and the unmarried, and while you might not use the word “oppression”, you might think that when it comes to money at least, he has a point. Tie the knot in the UK and your path to riches is rather smoother than if you do not.
There is the marriage allowance — which allows spouses earning less than £11,000 a year to transfer £1,100 of their income tax allowance to the other spouse as long as he or she doesn’t earn more than £43,000. But, with the top potential savings coming in at £220, this is pretty small beer next to the rest of the tax benefits on offer to the hitched.
The married can move assets around between them free of capital gains tax (CGT) to minimise tax bills: shares can be passed over before sale to use up two CGT allowances and income-producing assets can be moved into the names of the spouse in the lowest income tax bracket to cut income and dividend taxes. Over a lifetime, the savings you can make by using these benefits can be huge. But nothing perhaps on the potential savings at the end of a lifetime.
The married pay no inheritance tax (IHT) on each other’s assets and can also take on the unused bits of each other’s nil-rate bands. So when the first half of a couple dies, his full estate (you’ll see I’m assuming the man dies first) can pass to his spouse tax free. She then adds his IHT allowance to hers making £650,000 (£325,000 plus £325,000) and their heirs can receive up to that tax free. Had they not been married, she would have paid 40% tax on anything over £325,000 from him, and her heirs on anything over the same amount from her. So on a £1m inheritance, the kids of the married couple could end up with £860,000 (assuming the second spouse to die isn’t a big spender). Those of the unmarried? Just £568,000. Ouch.
There’s also the matter of what happens if you don’t make a will (as I’ve just assumed that you have). If you are married, your spouse doesn’t automatically get the lot — but they do at least get everything up to £250,000 and half of anything over that (in England and Wales — the rules are different in Scotland and Northern Ireland). If you are not married, she gets nothing — it all goes directly to the kids. Maybe they’ll do the right thing by her. Maybe they won’t.
It is also worth remembering that the married are entitled to bereavement benefits on a partner’s death (again, cohabitees are not) and that they automatically take on part of their spouse’s defined benefit pension scheme on his death (there is movement on this for cohabitees with some schemes as long as they are nominated as the heir, but it is most definitely not automatic).
It’s all good. And it all adds up. Study after study in the West shows that the married tend to be significantly better off than the unmarried (for those in any doubt, Aviva has just put out a helpful survey noting that the average monthly income of a cohabiting couple is about 14% lower than that of a married couple). It is hard to disentangle cause and effect, but over the long term, the tax advantages of being married can’t exactly hurt.
Financial types will have noted a problem here. All studies on whether being married somehow makes you better off or not suffer from survival bias. Failed marriages don’t make the numbers. And a million other studies show that one of the main things that brings a marriage to its end is financial trouble: arguments over bills, spending and debt always turn up in the top two in lists of the things that cause marital strife. The answer (as with everything in relationships) comes down to communicating and sharing.
So if someone proposed to you on Valentine’s Day and you said yes, what can you do to keep those fights to a minimum, so as to live the long life together you need to make it into the “richer than the average cohabitee” category? The answer (as with everything in relationships) comes down to communicating and sharing. Don’t even think about making a date for the big day until you’ve talked about money.
How much have you each got? How much do you each earn? How much do you spend? What do you want out of your money (a house deposit or a round-the-world trip?) Who has a pension and who has debt? It is amazing how many people commit to spending forever with someone before they find out how much credit card debt he has.
Then set up a joint account. Figure out how much cash you need in it every month to meet all family expenses and then contribute to that sum pro rata to each of your incomes (it is only fair to do it this way). Do the same to Isa and pension accounts — making sure you contribute to two pensions (assuming you are in the same tax band) is the best way to avoid hitting the £1m lifetime allowance on either later in life. In an ideal world of love and sharing, I would then have the higher earner contribute to the lower earner’s personal account so as to equalise personal spending power.
Make wills. Nominate each other on your pension documents. Start a proper rainy day fund. Keep some in cash and invest the rest so that it isn’t eroded by inflation (now on the up all over the world). That way, when financial crisis comes you won’t have to fight about whose fault it was: you can just pay for it. And finally, sit down together every six months (phones down) and talk about where you are with your finances. Fewer surprises tend to mean fewer rows.
So there you go. A plan. Kakuhido members will despise you for it as it represents an obvious embrace of “love capitalism”. But get it right and my guess is that you won’t mind.
* Thanks to Jonathan Allum of SMBC Nikko for pointing this one out to me!
• This article was first published in the Financial Times.