The coronavirus pandemic led to thousands of couples postponing their weddings last year, at an estimated cost to the industry of over £5 billion. While the roadmap out of lockdown has offered hope for some, others have cancelled their plans entirely.
Figures from the Office for National Statistics confirm that the number of cohabiting couples has increased rapidly in the last ten years, rising by over 700,000 since 2009. That amounts to 3.5 million cohabiting couples in the country, before the coronavirus pandemic.
There are financial risks attached to cohabiting, when compared to living with a spouse or a civil partner, including tax treatments and issues around inheritance.
Keep reading to find out three ways in which getting married might benefit you and your partner financially.
1. The Marriage Allowance
The Marriage Allowance is usually available to couples if one partner has income below the Personal Allowance – currently £12,570 for the 2021/22 tax year and frozen at this rate until 2026.
It allows you, as the lower-earning partner, to transfer £1,260 of your Personal Allowance to your husband, wife, or civil partner.
This could reduce their tax bill by up to £252 per year.
Making use of this allowance might increase the amount of tax you pay personally while decreasing the amount you pay as a couple.
You can apply for the Marriage Allowance if:
- You are married or in a civil partnership
- You do not pay Income Tax, or your income is below your Personal Allowance
- Your partner pays Income Tax at the basic rate.
Note that all the above must apply for you to be eligible. The allowance is payable to married or civil-partnered couples, but not to unmarried cohabiting couples.
You may be able to backdate your claim, so speak to us if you think you might be eligible.
2. Inheritance Tax (IHT)
There is no IHT to pay on the transfer of assets between married couples or those in a civil partnership. Everything the deceased owns will usually pass to their partner automatically, along with their unused IHT allowance.
If your spouse leaves you 100% of their estate on death, their nil-band rate passes to you, doubling it to £650,000. The same is true for your partner if they survive you.
For cohabiting couples, however, tax is payable at 40% on assets worth more than £325,000.
Whether you are married or cohabiting we can help you mitigate the impact of IHT on your estate. Be sure to speak to HA&W if you are worried about what would happen to you or your partner’s assets on death.
3. The importance of a will
A will is vitally important in all cases, but it could be even more crucial if you are cohabiting.
A will allows you to state who you would like your assets to go to on your death and it is the best way to ensure your wishes are carried out. This can give you and your loved ones peace of mind and save stress, money, and complications at an already difficult time.
If you have a partner or dependants and you don’t have a will in place, speak to us now.
Dying without a will in place – known as dying “intestate” – means that you have no say over where your assets go. The laws of intestacy state that only blood relatives, spouses, and civil partners can inherit.
A home that you live in with your unmarried partner could be taken away from you in the event of them dying intestate. You could find that your late partner’s relatives are granted ownership over half of your house.
If you are married and don’t have a will in place – or you have one, but it is out of date – speak to us about helping you to put a will in place to ensure your wishes are carried out on death.
The myth of “common law marriage”
While cohabiting is becoming increasingly popular, the myth of “common law marriage” persists.
Almost half (46%) of those who completed a 2019 survey from the National Centre for Social Research confirmed they believed unmarried couples who lived together had the same rights as married couples.
This number increased when children were involved. Of the surveyed households that included children, over half (55%) believed that the presence of children gave them common law marriage status.
Understanding your rights – whether as a married couple or a cohabiting one – is vitally important.
The long-term financial plan we can help you put in place will protect you and your loved ones now, while giving you confidence that they will continue to be looked after in the future, whatever happens to you.
Get in touch
Please contact us if you’d like to discuss any aspect of your current financial plans and the impact of cohabiting or marriage on your pension or estate planning.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.