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Are there any advantages to getting married after living together?

14th June 2022

Deb Haynes considers the tax advantages of getting married, even where a couple have been living together for many years.

I pondered this after recently hearing of my friend’s invite to her uncle and aunt’s wedding.  

She had always thought they were married but then, there she was, on the receiving end of an invitation to attend their wedding.  

I said they had probably been talking to their accountant and I hoped that their advisor had also received an invitation!  It is likely that the cost of the wedding was a good investment when compared to the tax they may be saving!

Tax considerations

There are certain times in life that give us cause to re-evaluate our lives, and as they were approaching retirement they had probably been taking stock: tracing old pensions, boosting retirement income and dealing with debts and then taking that a step further to review their exposure to inheritance tax (IHT) and ensure that they were making maximum use of available reliefs.

One important relief is the spousal relief so that anything left in a will to a spouse or civil partner is not subject to IHT.  

If you and your partner are not married or in a civil partnership, then any legacy to your other half will eat into or use up other valuable reliefs available, mainly being the IHT nil rate band (NRB) (currently £325,000) and the residence nil rate band (currently £175,000) - (making a total of £500,000).  

Transferring reliefs

But, if you don’t use all of the nil rate band available to you, there is a further benefit to having taken that walk down the aisle!  This is because if, as a married person, you do not use all of your nil rate band or residence nil rate band, then what you don’t use can be transferred to your spouse/civil partner and is available to be used against their estate.  The transfer of unused nil rate bands is not available in any other situation.

This can be particularly beneficial if the property you own is worth up to £1 million. If the first of an unmarried couple dies leaving their half share in the property to their partner, they will have used up their NRBs on that legacy so that on the death of the second partner, there is an IHT liability on the value of the property not covered by the NRBs available to the second to die.  

Whereas for a married couple, the half share in the property passes to the surviving spouse on the first death along with their unused NRBs which are then available to claim at the time of the second death.  (Note that the residence nil rate band is restricted for estates worth in excess of £2 million)

Lifetime transfers

In addition, lifetime transfers between married couples are exempt from both capital gains tax and inheritance tax.  Thus, if in an unmarried couple the wealth is not evenly distributed, significantly more tax may be paid than if the couple had been married.

ISA investments

Another valuable relief available to spouses is in relation to savings and investments held in ISAs.  Individuals are limited to £20,000 investment in an ISA per tax year and over time these investments can become valuable.  

Although the tax exemptions available in relation to ISAs do not extend to IHT, so that the value of investments is chargeable to IHT on death, a one-off additional ISA allowance, known as additional permitted subscription (equivalent to the value of a deceased partner’s ISA holdings) is available to a surviving spouse so that they can continue to benefit from the income tax and capital gains tax advantages of the ISA investments.  

This additional allowance is available even if the ISAs themselves are left to someone other than the surviving spouse.

Further information

You can find more information on our Estate Planning and Probate Services page.

If you would like to discuss how taxation of the family can impact your decisions, please contact a member of our Estate Planning & Probate team who will be pleased to talk to you.

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