Who says it’s all about romance? There’s more to marriage than a lot of couples take into consideration. Clare Stinton, Senior Personal Finance Analyst at Hargreaves Lansdown says that not tying the knot means missing out on unlocking financial advantages.
This time of year usually marks the start of wedding season. But while wedding bells are ringing, fewer couples are saying ‘I do.’ More are choosing cohabitation, but skipping the aisle can be costly when it comes to money, tax and long-term financial security.
Tying the knot unlocks financial advantages – in particular, tax perks. Benefits that unmarried couples simply don’t have access to, no matter how long they’ve lived together, regardless of shared bills, or whether they have children.
Being married – including civil partnership – in the eyes of the law, provides tax-free allowances, inheritance tax benefits and clearer rules around the division of assets for partners and any children, that cohabiting alone doesn’t offer.
The financial perks exclusively available to married couples and civil partners:
The marriage allowance
This is an easy way to shave up to £252 off an annual tax bill and is available to married couples where one is a non-taxpayer earning under £12,570 annually and the other partner is a basic rate taxpayer.
The non-earner or lower earner can transfer up to £1,260 of their personal allowance to the partner who earns more. This increases their tax-free allowance from £12,570 to up to £13,830, reducing the amount of income they pay tax on.
It’s possible to backdate the claim up to four years, provided your clients meet the criteria for each tax year in question. If your client is applying for the current tax year 2026/27, they could potentially backdate for tax years 2025/26, 2024/25, 2023/24 and 2022/23 – meaning there’s up to £1,260 to be claimed.
Tax-free savings and investment transfers
Being married means being able to move savings and investments freely between each other without triggering a tax charge – something unmarried couples can’t do. This gives a valuable tax planning opportunity, particularly if one partner is in a lower tax band.
Cash savings
Let’s start with cash. The personal savings allowance means basic rate taxpayers can earn £1,000 in savings interest tax free, while higher rate taxpayers get a £500 allowance, and additional rate taxpayers get no allowance.
So, if one partner is a basic rate taxpayer and the other an additional rate taxpayer, holding any cash outside of ISAs in the basic rate taxpayer’s name can significantly reduce the tax owed on interest. (For Scottish taxpayers the personal savings allowance is determined by the rest of UK tax bands).
Investments
It’s similar for investments. Each individual has a £3,000 CGT allowance per year. Making use of both partners’ allowances and spreading the sales over multiple tax years can heavily reduce the amount of money to hand over to HMRC.
Who holds the assets also matters. Lower earners typically pay lower tax rates on savings interest, dividends and capital gains, so being strategic about who holds which asset can create significant long-term savings.
To go one step further and sidestep a tax bill altogether – ensure ISA allowances are utilised. If your clients hold investments outside of ISAs, a Bed & ISA lets you move them inside an ISA, sheltering future income and gains from tax.
The process does involve selling and rebuying the investments, so do keep the CGT limits in mind. Done carefully, couples can gradually move taxable investments into ISAs to keep more of their hard-earned money in their pocket.
ISA – additional permitted subscription
There’s also an important ISA benefit that flies under the radar – the ISA additional permitted subscription – which expands the surviving spouse’s ISA allowance by the total value of the deceased spouse’s ISA when they died.
Crucially this means those investments can continue to remain exempt from UK income and capital gains tax and could provide the surviving spouse a tax-free source of income in retirement.
Till death do us part – inheritance tax exemptions
For families who want to pass on wealth, there’s a few IHT exemptions available to married couples that cohabiting couples miss out on, regardless of how long they’ve spent building a life together.
Firstly, upon death the transfer of everything between spouses is free of IHT. The crown jewel of these benefits is that married couples can inherit each other’s unused nil rate bands, which could save their families a significant chunk of cash – especially given inheritance tax is usually charged at 40%.
Everyone has a nil-rate band of £325,000, and anything unused can be passed to the surviving spouse or civil partner. Together, that means an estate up to £650,000 could be passed on IHT-free.
And there’s more. The residence nil rate band – worth up to £175,000 per partner – which is available when passing the main family home to children or grandchildren, can increase the total IHT-free allowance to one million pounds.
This can make a huge difference to how much of your client’s hard-earned money stays in the hands of family, rather than going to the taxman.
These rules will become particularly useful, as from April 2027 any unused defined contribution pensions become part of people’s estates for inheritance tax purposes.
It’s a shift that will see more estates pulled into the inheritance tax net, so the exemptions offered to spouses and civil partners give valuable peace of mind.
Main image: wedding, marriage, drew-coffman-llWjwo200fo-unsplash
