Does it make financial sense to get married?

Jade Wimbledon

by , Digital content producer

23 Nov 2016 /  

23
Nov 2016

Does it make financial sense to get married?

Millennials see marriage differently to previous generations. In a recent study, only 30% counted a successful marriage as an ‘important achievement’, with most people instead prioritising goals like having a high-paying job and being a good parent.

But might it be a good idea to marry for money? We don’t mean in the sense of getting hitched because you’ve found a wealthy individual to fund your lifestyle, but in terms of tax breaks and other financial details that could make marrying your partner more prudent money-wise than simply cohabiting.

UK law treats married couples and those in civil partnerships pretty differently from unmarried folks, so here’s how walking down the aisle could affect you financially.

The financial benefits of marriage

Inheritance tax

Inheritance law is something that older people tend to be more concerned about than young people, but obviously it could impact any of us. This is the major financial benefit that comes with marriage: if you’re married, when you die your assets can be passed on to your spouse without any inheritance tax deductions. Plus, if your estate is worth less than the inheritance tax threshold of £325,000, you can pass on any unused threshold to your husband or wife, so their inheritance threshold can be upped to as much as £650,000.

Your assets can be passed on to your spouse without any inheritance tax deductions

If you’re not married, your partner won’t automatically inherit your assets: you’ll need to name them as your beneficiary in your will. If your estate (which includes your savings and any property you own) is worth over £325,000, your partner will have to pay inheritance tax, which is charged at a rate of 40%.

And, did you know that there are special inheritance tax exemptions for wedding gifts? Normally, gifts that someone gives you within seven years of their death count towards their estate when inheritance tax is being calculated, but wedding gifts of up to £1,000 don’t count. If it’s a gift from your parent, the limit is £5,000, and it’s £2,500 if it’s a gift from a grandparent or great grandparent.

Marriage allowance

groom with bouquet

If you or your partner is a low earner, getting married may mean qualifying for the marriage tax allowance. Each year, everyone has a personal allowance, which is the amount you can earn before you need to start paying income tax. This is currently £11,850.

If one of you earns under £11,000 and the other earns more than that but less than £43,000, the marriage allowance means the lower earner can transfer £1,100 of their personal allowance to their spouse, reducing their tax liability. This could mean a tidy saving of £220 for the tax year 2016/17.

It’s easy to get the marriage allowance mixed up with the married couple’s allowance, but the married couple’s allowance is a perk only available if one of you was born before 1935.

Capital gains tax

If you’re selling assets like funds, shares or buy-to-let property, then you pay capital gains tax on profits above £11,100. The rate is 18% for basic rate taxpayers and 28% for higher rate taxpayers.

But a married couple can transfer ownership of assets to each other without being liable for capital gains tax, and if you hold an asset jointly, you can combine your capital gains allowance so that the threshold is upped to £22,200 before capital gains is due.

Pensions

If you have a defined contribution pension, which is the most common type nowadays, you can name your partner as a beneficiary and they will inherit your pension when you die, whether you’re married or not.

However, if you or your partner has a defined benefit pension - most common in the public sector or large corporations - there are specific benefits that can usually only be received by a widow or dependent child. If you’re married, the surviving spouse can receive a ‘survivor’s pension’, sometimes for the rest of their life. An unmarried partner is unlikely to be entitled to this, although it depends on the pension scheme rules.

See our article on what happens to your pension when you die for more information on this topic.

Insurance

couple smiling

Surprisingly, you may also benefit from lower insurance premiums if you’re married, particularly when it comes to car insurance. This is because insurance company data shows that married people make fewer and less expensive claims than single people, so premiums are reduced accordingly.

The reason married people make fewer claims is unclear, but it could be because they’re more likely to have more than one car, so each vehicle makes fewer trips, and households with young children are less likely to be out late at night, which is when more accidents happen.

Wages

Several studies have shown that married people earn more on average than unmarried people.

Married men are more likely to be dissatisfied with their income

A German survey a few years back showed that married men earn 4% more than men who live with their partners, and nearly one third more than their single counterparts, even when age, education and experience are factored in.

Researchers found that married men are also more likely to be dissatisfied with their income, and speculated that it’s this dissatisfaction that drives men to strive to push their earnings up, coupled with a need to earn more due to the increased household expenditure that can come with being married and starting a family.

Does it make financial sense for cohabiting couples to get married?

As you can see, there are certain financial perks to marriage, but they’re mostly relevant if you have sizable assets. Since young people today are less likely to own property and less likely to have defined benefit pensions, the most important benefits like inheritance tax relief and ‘survivor’s pensions’ won’t apply to most of us.

However, being married to your partner may still have a few modest financial benefits, in the form of the marriage allowance and cheaper insurance premiums. Plus, you have more legal and financial protection if you’re married, as we explored in our article on the finances of cohabiting couples and our piece on the financial implications of breaking up.

So in conclusion? Well you probably won’t be surprised to hear that it’s best to marry for love rather than money.

Are the financial benefits important? Or should you marry solely for love? Tell us your opinion in the comments section at the bottom of the page…

Costly pension mistakes

In your 30s? Find out if you’re making any of these common pension mistakes.

Read now

Capital at risk

PensionBee product shot PensionBee product shot

Costly pension mistakes

In your 30s? Find out if you’re making any of these common pension mistakes.

Read now

Capital at risk

PensionBee product shot PensionBee product shot

Have a question? Call our UK team 020 3457 8444

Have a question?

Call our UK team

020 3457 8444

Monday-Wednesday 9:30am-6pm, Thursday-Friday 9:30am-5pm

Monday-Wednesday 9:30am-6pm
Thursday-Friday 9:30am-5pm