Fewer people are getting married and those that do are getting married later, typically after years of living together. But there are risks to waiting to say ‘I do’ – and financial (as well as romantic) rewards to getting hitched.
We are fast approaching peak proposal season. December is the most popular month to get engaged, accounting for more than 11% of proposals, according to the Queensmith 2024 marriage report. However, we’re not getting down on one knee as often these days, new official figures show – and this can affect everything from our pensions to our property to the inheritance tax we pay.
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There were 231,949 marriages and civil partnerships in England and Wales in 2023. This was a fall from 2022 – which saw extra demand at the end of Covid restrictions.
Living together unmarried – often while having children and buying a home – can create complications for your finances in the eyes of the law.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “We’re in no hurry to scurry down the aisle. The average age at marriage is now much higher than the average age to start a family (29 years) – and around the same age as when they buy their first home (34 years). It means more couples are living together without the legal protection of marriage, which has serious implications.” .
Preparing for pension changes
Chancellor Rachel Reeves announced in her Autumn Budget that pensions will be included as part of an estate for inheritance tax (IHT) purposes from April 2027.
That could mean more estates paying inheritance tax, but one way to at least delay this is by ensuring assets are passed to your spouse or civil partner.
Married couples and civil partners can pass assets to each other including pension savings tax-free. This isn’t possible if you are just co-habiting.
Emma Sterland, chief financial planning director at Evelyn Partners, says: “Of course, the IHT problem might arise further down the line when the surviving spouse dies. While possibly benefitting from two sets of nil-rate bands, their remaining wealth could be inflated by the pension assets from the first death, potentially increasing the IHT liability for their children or other beneficiaries – especially if they die soon after their spouse.
“However, for those who are in a relationship but unmarried – whether co-habiting or not – the issue could arise on the first death, leading to potentially much greater IHT exposure than would currently be the case. It is likely that some older couples in long-term relationships will decide to tie the knot to make this problem go away, and it is a conversation that we are having with some clients.
“Anyone who is married should check their pension death benefit nomination, as after this rule change it might be best for many couples’ IHT purposes to stipulate that the pension is paid in total to your spouse when you die, rather than any portion left to children or other family members.”
Combining your ISA allowance
Another financial benefit of getting married is the ability to work together to maximise your ISA allowances.
Each year, everyone over the age of 18 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 £500 annual dividend allowance, you will need to pay tax on any dividend income above this threshold.
- Capital gains: Once you exceed the £3,000 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 were 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.
Band | Taxable income | Tax rate |
|---|---|---|
Personal allowance | Up to £12,570 | 0% |
Basic rate | £12,571 to £50,270 | 20% |
Higher rate | £50,271 to £125,140 | 40% |
Additional rate | Over £125,140 | 45% |
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.
9 steps unmarried couples can take to protect themselves
If marriage still isn’t for you, there are some important legal protections you can put in place instead.
1. Consider how you hold pension and other savings
Don’t rely on your partner’s pension. Build up your own pot. If you split and you’re not married there is no legal requirement for them to share their pension with you. You should both consider making the best possible use of your ISA allowances too.
2. Complete a ‘nomination of beneficiaries’ form
Most pensions will pay out to a spouse when you die. If you’re not married, you can complete a form to ask for anything in your pension to pass to your partner.”
3. Make a will
If you want your partner to inherit some or all of your estate when you die and you’re not wed, you will need to draw up a legal will. Otherwise they could inherit nothing, as it will go to blood relatives first.
4. Write-up a co-habitation agreement
This contract of sorts lets you both formalise who owns what, how much each of you contribute to bills and what happens in the event you split, including how any children should be supported.
5. Get on the birth certificate
This will give the father the automatic right to care for the child if the mother dies. Otherwise both the mother and father will need to complete a parental responsibility agreement – which needs to have happened before the death.
6. Lifetime gifts could save you tax
Inheritance tax breaks for married couples mean you can inherit an unlimited amount from your spouse. This doesn’t apply to cohabiting couples. So it’s worth considering whether it makes sense to give gifts during your lifetime which can fall outside of your estate for tax purposes.
7. Think carefully about how all assets are owned
If one of you moved in with the other, and the home remains in their name, it remains their home – if you split you could lose everything if you're unmarried. If you both pay for the running of the home, consider switching to owning the property between you. If you want to reflect unequal shares in a property, you can do this as tenants in common.
Also think before taking on any debt: if the loan is for the benefit of both of you, it should be in both names. Consider your savings, if you’re saving together, it should be in both names.
8. Get life insurance
Both of you should have enough insurance to ensure any children are provided for in the event you die. After a split, the resident parent should have cover and if one of you is paying child support, they should have cover that will replace it in the event of their death.
9. Build a nest egg for any children
One of the best ways to protect children against whatever the future holds is for them to have savings and investments in their own name. The Junior ISA can be a really sensible option. Nobody can access the money until they are 18, and at that point it belongs entirely to the child.
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