Marriage and Finances
On 19th May, in the sun-soaked splendour of Windsor, Prince Harry married Meghan Markle. The ceremony was watched by an estimated £2 billion people around the world and was arguably the most anticipated wedding of all time.
Although marriage has dipped in popularity in the UK in recent years, perhaps due to the average cost of a wedding now standing at £27,000, there’s no getting away from the fact that getting married or entering a civil partnership remains the ultimate demonstration of romance and commitment. Anyone who watched the Royal wedding couldn’t fail to notice the love that was so obviously present between the new Duke and Duchess of Sussex.
Although Harry and Meghan don’t share the everyday financial concerns and considerations of most of us, tying the knot does carry some financial considerations for all couples.
If you are married, thinking about getting married or entering a civil partnership in the UK, it’s useful to think about the following:
Every year, each individual has their own ISA allowance (currency £20,000 per year). If one or other spouse routinely invests in ISAs, it might be worth considering using any unused allowance from the other spouse to ‘top up’ to the maximum allowance available. Similarly, where dividends are drawn from investments, it’s worth remembering that each individual has their own dividend allowance of £2000 per anum. If one spouse is not using their allowance, it makes financial sense to try and make use of this by placing investments in their name.
It’s also worth noting that each individual has a capital gains tax allowance in any one tax year. Although this can’t be pooled, it can be possible to transfer assets into a spouse’s name and make significant tax savings.
This allowance is applicable when one spouse doesn’t use their full income tax allowance in a tax year and the other pays income tax. In these circumstances, the lower-earning spouse can transfer up to £1,150 of their personal allowance to their higher-earning spouse (or civil partner). This can amount to a tax saving of up to £230 per year.
Taxable rate of income
Where one spouse is in a higher income tax bracket than the other it can be possible to make use of the lower marginal rate. For example, income that is derived from an asset such as a buy-to-let property is taxed at the owner’s highest rate of income tax. If one spouse is a basic rate taxpayer, transferring the property into their sole name can result in significant tax savings.
Just as a lower taxable rate of income can be used when gaining income from an asset, one spouse paying a higher margin rate can also be used to the couple’s advantage. This comes into play when paying into a pension as the relief on pension contributions at higher and additional rates of tax can be significant. One consideration is for the spouse that pays the lower rate of tax to pay into the higher taxpaying spouse’s pension. If this route is pursued, the total paid into the pension with the uplift from the reliefs could be significantly higher than if both spouses paid into their own respective pension funds. It’s worth noting that any individual has a maximum pension of allowance of £40,000 in any one tax year (although carry forward rules are available if previous years’ allowances haven’t been fully utilised). Should a couple decide to do this, it would be worthwhile consulting a lawyer to ensure that both parties’ interests are protected in the event of a split.
Married couples and civil partners are able to combine their respective Inheritance Tax allowances and the new Main Residence Nil Rate band in a way that unmarried couples cannot. Altogether, a married couple can currently pass on up to £900,000 of assets (including their main residence) to direct descendants. This will rise to £1 million by 2020 as the Residence Nil Rate Band will increase further over the next 2 years to £175,000 per individual by 2020/21.
Alongside the above, getting married also often means combining finances to some degree. This can be of benefit to young couples who are trying to get on the housing ladder as by jointly applying for a mortgage and combining deposit savings, it’s much more likely a mortgage will be affordable. The same applies if one spouse moves into the other’s home – it’s likely that through getting married, you’ll jointly contribute to the mortgage or rent, along with other household costs, sharing the financial burden.
This isn’t to say that after getting married a couple should necessarily pool all their assets together. We’re firm believers that women should retain control over their own finances, and this often means continuing to invest and hold accounts in their own name. What’s right for each couple will differ, depending on their circumstances. Seeking financial advice can help clarify the best way forward and ensure you are in the best position to take advantage of the financial benefits that come along with marriage.
Although Addidi prides itself on working with women, this doesn’t mean we don’t work with men as well. Our ethos involves working closely with all our clients, and their partners to provide advice that results in the best outcome for the whole family.