‘It’s just a piece of paper’. ‘We’ve got a mortgage and kids, we’re already committed.’ ‘We can’t afford a fancy wedding.’ Whatever your objections to marriage, don’t be so quick to rule it out. The financial benefits can be huge, and not everyone realises quite how much security they’re missing out on when they don’t tie the knot.

Marriages and civil partnership give equal financial protection, and now both options are open to both same-sex and mixed-sex couples, so if you’re one of the UK’s 3.5 million cohabiting couples, you could still have a legally recognised union even if marriage doesn’t feel right for you.

Lisa Orme, a mortgage adviser at Keys Mortgages, had been with her partner for 15 years with no intention of getting married, until they sat down with their accountant one day. ‘We had built a very large portfolio of properties in this time and a chat with our accountant changed everything when he said, “if one of you dies, you’re looking at a massive tax bill”.

‘We were married within six months of that meeting. At the wedding we had so many people ask us why we’d decided to get married after all this time. No-one believed us when we said “tax reasons”.’

IHT AND CGT RELIEF

Orme would potentially have been caught by inheritance tax (IHT) rules had she stayed unmarried. The transfer of assets between spouses is exempt from inheritance tax, so if one of you dies, you can pass any unused nil rate band to your partner.

The nil rate band is a tax allowance which means you don’t have to pay IHT on assets worth £325,000 or less per person. There’s also something called the residence nil rate band, worth £175,000 per person.

Crucially, you can inherit both of these reliefs, so together they add up to £1 million per couple. That means you could avoid paying 40% inheritance tax on up to £1 million of assets. But only if you’re married or civil partnered.

‘The tax treatment of unmarried cohabiting couples is arguably a scandal,’ says Rowley Turton Private Wealth Management director Scott Gallacher, noting that the Government denies non-working partners benefits because the other partner is working, effectively treating them as a unit, but doesn’t apply the same principles when deciding who gets tax advantages.

As well as reducing your inheritance tax bill if one partner dies, getting married can also give you capital gains tax relief, because you can transfer assets to your spouse tax-free. Useful too is the marriage allowance, which lets you transfer up to 10% of your personal allowance to your spouse to reduce their income tax bill.

INHERITING PENSIONS

Married partners can inherit each other’s ISA allowance, and there are implications for pensions too. If you are married and one partner dies, you may be able to use their state pension record along with your own if you don’t have enough qualifying years to get the full state pension.

Bear in mind also that couples who are not legally recognised as spouses won’t automatically inherit each other’s pension benefits. Financial adviser Leanne Lindsay of Edinburgh Wealth Management said two of her clients who had been together for 20 years decided to get married following a financial review meeting.

One of the reasons was that one partner had a final salary pension scheme which both would rely on for their retirement income, but the other partner would not be automatically entitled to it if the first partner died. ‘It would be at the discretion of the trustees of the scheme whether they would pay out to the surviving partner.

‘Some schemes accept a declaration of partner form which means you can nominate your partner although not married, but others schemes may not allow this if their rules have not been updated,’ she explains. ‘In this scenario, when they die, their pension dies with them.’

How marriage can save you thousands in IHT

Rowley Turton Private Wealth Management director Scott Gallacher explains how being married helps with IHT with a hypothetical example:

‘Imagine John owns a house worth £1m. When he dies, he leaves it to his partner Jane, but this creates a £270,000 IHT liability in the estate*. Jane is forced to downsize to a £730,000 home to pay the bill.

Jane then dies leaving the £730,000 house to their son James, but this time there’s £92,000 due in IHT so James inherits just £638,000**. “Had his parents been married, there would have been no IHT to pay at all in this example,’ says Gallacher.

‘It’s arguably even worse if assets are in one partner’s name and there’s no will, as the cohabiting partner won’t then inherit those assets, albeit the IHT might be less. In my example, with no will then on John’s death the house passes to James and is subject to a £200,000 IHT bill.’ 

*How this is calculated:

Estate – £1,000,000

Nil Rate Band – (£325,000)

Taxable Estate – £675,000

Inheritance Tax rate 40%

Inheritance Tax payable £270,000

**How this is calculated:

Estate – £730,000

Nil Rate Band – (£325,000)

Residential Nil Rate Bans – (£175,000)

Taxable Estate – £230,000

Inheritance Tax rate 40%

Inheritance Tax payable £92,000

WHY YOU NEED A WILL

If you really don’t want to get married, at least make a will and have a Power of Attorney (POA) in place, advises Lindsay. ‘This appoints an attorney to make decisions for you for welfare and or financial decisions, depending on the scope of your POA. Some people may also consider a cohabitation agreement,’ she says. Having a will is important because, without one, your partner isn’t automatically entitled to inherit your estate, even if they live in a house you own.

They may have to move out so the house can be sold. If unmarried, you may find a relative is classed as your partner’s next of kin, so if something happens to them, you may not be able to make medical decisions on their behalf, for example. Should they die, you also wouldn’t be eligible for the government’s bereavement support payment, worth up to £9,800.

So, yes, that certificate which proves you’re married or civil partnered is just a piece of paper, but it’s an important one. In fact, not having it could prove much more costly than a wedding.

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