The financial benefits of getting married - should you say 'I do'?

Young people are falling out of love with marriage, according to the latest figures from the Office for National Statistics (ONS). The number of over-16s who are married or in a civil partnership has fallen below 50% for the first time, with under-30s accounting for just 3.2% of this population. 

According to Zoe Bailey, director of financial planning at Evelyn Partners, “younger and middle-aged couples are increasingly content with just living together”. She points to the fact that, despite the decline in the number of people getting married, “the total number of cohabiting couples has increased from around 1.5 million in 1996 to around 3.6 million in 2021.” 

Of course, social views are always evolving. But, in a world where the law doesn’t necessarily keep pace, it’s important to know what financial and legal privileges you and your partner could be giving up by not tying the knot – whatever your views on marriage.

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Combining your ISA allowance

“It’s understandable that some individuals might be averse to combining their finances with those of another, whether they are married or not”, says Bailey. However, there are some distinct tax benefits for cohabiting couples who decide to say "I do". 

One of these is the ability to maximise your combined ISA allowance. 

Each year, everyone over the age of eighteen has a £20,000 ISA allowance. An ISA is a tax-efficient wrapper, which allows you to save and invest money without having to pay income and capital gains tax.

It isn’t possible to open a joint ISA account with someone else. However, if they are savvy, married couples can essentially double their ISA allowance to £40,000 by working together. 

For example, if your other half hasn’t maximised their allowance (which is an annual “use it or lose it” privilege), but you have already put away £20,000, you can pay some money into their account to avoid the remaining allowance going to waste.

Of course, the option of paying money into someone else’s account is open to anyone, married or otherwise. However, unmarried couples who split up could struggle to recover these funds, meaning they are ultimately less protected.

Other tax free allowances you can share 

Once you have maximised your ISA allowance, most other savings or investments are fair game for the taxman. However, this only kicks in once you exceed a certain threshold. And, crucially, married couples can take steps to share these allowances between them. 

Before delving into the efficiencies that married couples can take advantage of, we summarise the general rules below:

• Dividends: Once you exceed the £1,000 annual dividend allowance, you will need to pay tax on any dividend income above this threshold. 
• Capital gains: Once you exceed the £6,000 capital gains allowance, you will need to pay tax on any gains you make upon selling an asset. 
• Savings income: Once you start earning more than £1,000 in interest on your savings (known as the personal savings allowance), you will need to pay tax on any additional interest you earn.

If you are married and you have maximised the above allowances already, it might make sense to transfer some of your assets into your partner’s name – particularly as the dividend and capital gains allowances were cut in 2023, and are due to be slashed again in April 2024. 

This will help you reduce your overall tax bill and, as you’re married, the transfer won’t count as a gift. 

It’s worth noting that gifts can be subject to a whole set of additional tax rules – particularly if given less than seven years before you die. 

What is the annual marriage allowance?

Most people in the UK have a personal allowance, which means that you don’t pay any income tax until you start earning £12,570. Then, you will only be taxed on anything above this threshold. Everyone is entitled to the full personal allowance until their income hits £100,000, at which point it begins to go down. 

But HMRC also rewards the institution of marriage through the tax system.

Depending on how much each partner earns, married couples are allowed to transfer some of their personal allowance between one another, if they haven’t used it all up. This is called the marriage tax allowance. This benefit is only available if the higher earner has an income between £12,570 and £50,270. 

The maximum amount that can be transferred between partners is £1,260.

Income on a buy-to-let property 

If you and your partner own a buy-to-let property, and you are on different income tax thresholds, then it makes sense to transfer the property into the name of the lowest earner.

That way, they can put their personal allowance (if they have any of it left) towards any income earned on the house. 

Furthermore, the remaining income that you earn on the property will be subject to a lower rate of tax.

As previously, you don’t have to be married to transfer a house into someone else’s name. However, if you aren’t married and you decide to separate, your legal rights will be far less protected. 

Furthermore, as a “gift” between unmarried partners, the house could be subject to a hefty inheritance tax bill if you die within seven years of passing it over.

Protecting your estate and minimising inheritance tax

Inheritance tax – it’s one of the most hated taxes of all. But it can be particularly costly for unmarried couples sharing a home. 

You can pass on assets of up to £325,000 without your loved ones having to pay tax. This is called the nil rate band. However, as soon as you exceed this limit, your assets could be subject to 40% inheritance tax. 

So, if an unmarried couple share a house (and the deceased partner’s share exceeds £325,000), the remaining partner could be left to foot the bill. And, if they don’t have the cash available at the time, they could even end up having to sell the family home. 

Married couples can pass their estate on to their spouse without any immediate tax implications. Furthermore, if they don’t use up their nil rate band, they can pass that on to their spouse to use in the future too. 

Finally, an allowance called the residence nil-rate band gives parents some tax relief when passing their main home on to their children (or other “lineal descendants”, such as grandchildren). Each parent’s allowance is worth £175,000.

Again, married couples can combine this allowance. 

When you add all of these allowances together (£325,000 + £325,000 + £175,000 + £175,000), married couples can theoretically pass on an estate worth £1 million to their children without any tax being due.

Some steps you should take if marriage isn’t for you

“While marrying for financial motives is few people’s idea of romance”, says Bailey, it is nevertheless important to “remain informed of the possible financial, and particularly tax, advantages of marriage”. Couples should also be aware of the “financial rights that someone does or does not have when cohabiting”, she adds.

That said, if marriage still isn’t for you, there are some important legal protections you can put in place instead. 

For example, writing a will can help protect your partner’s interests once you are gone. This is important because, if you don’t explicitly state that you would like your estate to be left to your partner, it is possible that it will go to blood relatives instead. 

Finally, putting a cohabitation agreement in place can also ensure you and your partner are treated fairly in the event of a separation or death.