Thanks to Valentine’s Day, this week was one of the busiest of the year in terms of marriage proposals and weddings. With the average wedding now costing almost £30,000, you’d be forgiven for thinking it is a ludicrous waste of money. But before you hand back the ring, it’s worth being aware that marriage can be a lucrative business.
Having analysed all the tax breaks available to married couples, broker Hargreaves Lansdown estimates that a couple married for 50 years could be £190,964 better off than those who did not marry – even after you deduct the cost of the wedding.
Take advantage of tax breaks
If you are a basic-rate taxpayer, and your partner doesn’t earn, then make use of the marriage allowance. This allows a non-earning spouse to transfer £1,150 of their £11,500 personal allowance (the amount you can earn each year before you start paying income tax) to their spouse. If your non-earning spouse transfers some of their allowance to you, you could cut your tax bill by up to £230 a year. Yet fewer than one in four eligible married couples use this allowance (many don’t know it exists).
But even if you don’t qualify for the marriage allowance, it still pays to do some income-tax planning. If your other half is in a lower income-tax bracket than you, or they don’t earn at all, then transferring income-bearing assets into their name could reduce your overall income-tax bill. Also, split any dividends between you in order to make the most of both your dividend allowances.
You can each receive up to £5,000 this tax year (falling to £2,000 from 6 April) from dividends before tax is due, so that’s £10,000 between you. When it comes to your assets, consider whether you are likely to sell them, resulting in a capital gain. If you might, then hold the assets jointly so you can benefit from both capital gains tax (CGT) allowances. Everyone can make up to £11,300 a year in capital gains before tax is due – so combine both allowances and you have a hefty £22,600 tax-free each year.
Married couples also get an added benefit when it comes to individual saving accounts (Isas). Spouses or civil partners can inherit their partner’s Isas when they die, meaning the money retains its Isa status and can continue to grow tax-free. If you aren’t married, then when you die your Isas lose their tax-free status when they pass to your beneficiaries. Given that you could have amassed large sums in Isas, this can make a big difference to your surviving partner.
‘Til death do us part
On the cheery topic of death, assets can pass between spouses free of inheritance tax (IHT), potentially avoiding a big tax bill. Not only is there no tax to pay on assets passed between a married couple when the first partner dies, but their nil-rate band passes over too. Everyone has a £325,000 IHT allowance, plus homeowners have a residence nil-rate band that will be £175,000 by 2021.
That means when the second spouse dies they can leave up to £650,000 tax-free in cash and £350,000 of property (although the property has to be passed to children or grandchildren for the nil-rate band to be valid). By contrast, if you aren’t married and your partner dies (long-term co-habitees beware), you are subject to the same IHT rules as anyone else, meaning estates worth more than £325,000 will be taxed at 40% on the excess.
Of course, it might not be the best idea to get married simply for the tax breaks – couples will only benefit from the extra £190,000 if they remain married for life. “Once you introduce a divorce and possibly a remarriage into the proceedings, then you’re looking at a significant financial loss,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown.
Pocket money… hedging risk for the bank of mum and dad
• The “bank of mum and dad” is the ninth-biggest lender in the UK, handing over £6.5bn-worth of loans, but parents who buy jointly with their children risk being “snared” by the 3% stamp-duty surcharge on second homes, says James Pickford in the Financial Times.
Fortunately, there is a way around this: a formerly “niche” product called a joint borrower sole proprietor (JBSP) mortgage, which allows a family member to “back a buyer financially without becoming a co-owner”. The other advantages of JBSP mortgages are that parents won’t be subject to a capital gains charge if the property is sold, and first-time buyers will qualify for the new exemption from stamp duty (introduced last November), provided the property isn’t worth more than £300,000.
• The government is cracking down on unpaid internships, sending out 550 warning letters to firms and “setting up enforcement teams to tackle repeat offenders”, says Sarah Butler in The Guardian. HMRC is expected to target the media, performing-arts, law and accountancy sectors, and will issue guidance to employers as to when they are legally required to pay interns the minimum wage. According to educational charity the Sutton Trust, around 70,000 internships are offered in the UK each year, and of an estimated 10,000 graduates in internships six months after graduation, 20% still aren’t being paid.
• Collective energy switches – where customers join forces to negotiate a better deal – are becoming increasingly popular, with around a million households using them each year, says Sam Meadows in The Daily Telegraph. But how do they work? Sign up to a collective switching scheme run by the likes of the Big Deal or iChoosr, and once enough people have registered, negotiations with energy providers will begin.
Once a deal has been agreed, the customer is free to choose whether to accept. On average, people save £250-£300 a year, but those with larger houses or properties that are hard to heat have saved as much as £700. However, since these services don’t survey the whole market, it’s worth checking to make sure you can’t get bigger savings elsewhere.