What's the point in marriage anyway? That’s what all of us wedding scrooges said until we saw Harry and Meghan look lovingly into each other’s eyes.
But before we get lost in fairytales, let’s address the fact that fewer people are tying the knot. The latest figures available from the Office for National Statistics indicate that the marriage rate has been on a downward trajectory since the early 1970s, hitting its lowest level on record in 2015.
Of course, there are an abundance of reasons why people are choosing not to get hitched. For some young folk, it’s a toss up between buying a house and the cost of the big day (the average wedding in the UK now amounts to an eye-watering £27,161, according to Skipton Building Society).
If you’re not one of the fortunate few who can have their wedding paid for by the state, does it make sense to sacrifice your savings on one day to prosper from the financial perks of marriage later down the line? Figures from Hargreaves Lansdown suggest yes.
Personal finance analyst Sarah Coles points out that over a 50-year marriage, a couple could be £190,964 better off, even after taking the phenomenal cost of a wedding into account (although the catch is that most of that benefit comes from saving in inheritance tax).
The biggest upside to being married – from a tax perspective – arises on death
Many people are under the misconception that if they have lived with their partner for several years, they have the same rights as married couples. But Maike Currie, investment director at Fidelity International, says this isn’t true: “In fact, you have very little rights. And should you choose to ‘uncouple’, you are not necessarily entitled to a slice of the assets you currently share.”
You could argue that the best tax planning strategy you can have is to get married. After all, who needs love when you’ve got tax relief?
To honour, to treasure
Unlike those who are cohabiting, married or civil partnership couples can share their assets between them to make the most of both of their tax-free allowances, and ultimately avoid a hefty tax penalty.
Rebecca O’Keeffe from Interactive Investor says this is a major benefit that shouldn’t be underestimated.
Take capital gains tax (CGT). Each individual currently has an annual CGT allowance of £11,700. Where an individual might incur capital gains of more than this, they can transfer some of the assets to their spouse and effectively benefit from double the allowance (so a married couple holding the assets jointly could make a gain of £23,400 before paying tax).
But if this is still going to leave you with a CGT bill, O’Keeffe advises you split the assets in such a way that you use both allowances, and the lowest rate taxpayer foots the bill for the additional capital gains to minimise the amount of tax due.
It’s not just the CGT allowance where marriage comes in handy – couples can also transfer assets to make the most of the annual dividend allowance and personal savings allowance.
As long as we both shall live
While it’s unlikely to feel like you've hit the jackpot (and probably won't even cover the cost of a hemline on a wedding dress), married couples can enjoy a £238 tax saving this financial year by using the marriage allowance.
If one spouse is earning less than £11,850 during the tax year, they can transfer £1,190 of their personal tax-free allowance to their other half – provided the higher earning spouse is a basic-rate taxpayer, earning up to £46,350 (£43,430 in Scotland) a year.
'Til death do us part
Now let’s get morbid. Most of the benefits of marriage arise at the worst times. “As sad as it is to say it, the biggest upside to being married – from a tax perspective – arises on death,” says Tim Snaith from Winckworth Sherwood, pointing out that this is the reason why many long-term cohabiting couples marry in older age, or if one partner is terminally ill.
Assets passing between married couples on death are generally exempt from inheritance tax.
This can amount to a saving of up to 40 per cent, which could potentially save the surviving spouse hundreds of thousands of pounds.
Everyone has an inheritance tax threshold (currently £325,000), while homeowners have a property threshold (which will be £175,000 by 2021). So when married partners leave assets to one another, their tax-free bands are added together so that the surviving spouse has a threshold of £650,000, and (assuming they are passing it to children or grandchildren) £350,000 worth of property free of tax.
For richer, for poorer
Capital gains tax usually favours married couples, as assets can be “gifted” to your spouse without incurring a tax penalty.
But there are also advantages arising on death.
As Snaith points out: “assets that have made significant gains, if passed to a spouse on death, are generally given a new base value for tax purposes at the date of your death – all the while still avoiding inheritance tax.”
Isas inherited from your spouse can also escape tax liabilities.
A few years ago, the tax efficient status of an Isa ceased on your death. But Currie points to a rule change back in 2015 which meant that Isa investors are now able to pass the tax advantages of their Isa over to their spouse or civil partner when they pass away.
The surviving spouse can essentially apply for an additional Isa allowance, known as an Additional Permitted Subscription allowance, which is equal to whatever their partner held in the Isa at the time of their death.
In sickness and in health
Although increasingly rare, there are still millions of people with generous defined benefit pensions, which often include (wait for gasps from the millennials ) a spouse’s pension if their partner passes away.
O’Keeffe says the average rate a spouse can get is around half of their partner’s pension, payable for the rest of the spouse’s life – so potentially a huge benefit. “If you’re not married, the pension trustees may still pay this benefit, but it is at their discretion, not guaranteed,” she adds.
Generally speaking, married couples have to jump through fewer hoops to inherit their partner’s pension on death – regardless of what kind of scheme it is. But the devil will be in the detail, so it’s important to read the small print.
While cohabiting couples can draw up agreements and wills to help determine how assets are split or inherited, there’s very little they can do to avoid paying taxes altogether.
So while some of us are rolling our eyes over the royal wedding, thinking marriage is a pointless palaver, it’s not as ludicrous from a financial point of view you might think – though you could also argue the government needs to keep up with the times so cohabiting couples can enjoy some of the same tax benefits as their married peers.
O’Keeffe adds: “Hopefully, the majority of us marry for love, not tax relief – but benefitting financially may help with the happily ever after.”