The wedding might set you back a tidy sum, but once you're married or entered into a civil partnership, there are plenty of ways to organise your finances to make marriage pay. Just remember that tax treatments will depend on your circumstances and may change.
The average cost of a wedding topped £20,000 in 2010(1). It's a daunting figure, especially when you consider that it would take a couple more than six years to achieve £20,000 if they each save at the average rate of £134 a month (assuming an interest rate of 2.5% per annum). Fortunately, there are tax-efficient ways that parents and others can help out with the cost of the big day. You are ordinarily allowed to pass on £3,000 a year free of inheritance tax (IHT), and gifts for weddings or civil partnership ceremonies are also exempt from IHT up to the following limits:
Sarah and Jason Titley from Gloucestershire have been married for five years.
Sarah explains how they organise their money.
Organising joint finances
Sarah and Jason Titley from Gloucestershire have been married for five years. Sarah is a full-time teacher while Jason teaches guitar and looks after their young children. Sarah explains how they organise their money:
"We use our joint account for everything. Our wages go in, we pay bills from it, and we take out what we need when we need it. Sharing everything works for us: it's about total trust and a big part of being married."
"When we met, I was paying off debts run up by a previous partner. Jason helped me pay these off so we could start married life with a clean sheet. We talk a lot about our finances and we don't automatically split everything equally. If one of us wants something expensive, we wrangle about it 'til we're both happy. If you think: 'You've had this much so I need that much, too,' it makes for needless arguments."
"We use our online account to put money into separate ‘pots’ for specific things like car repairs. As Jason doesn't usually earn enough to pay tax, we plan to put our savings in his name so we don't have to pay tax on the interest."
Sarah advises other couples to:
- be totally honest with each other
- plan together for purchases rather than making rash decisions
- not to get hung up on splitting things down the middle.
One of the most common topics of argument between couples is money. To keep rows to a minimum, find a way of handling joint finances that you both feel is fair and workable. Be upfront about discussing your new financial goals as a couple: budgets, decisions on who pays for what, and whether you have joint accounts.
On a more practical level, if you've changed your name, make sure that you update your banking cards and identification, such as your driver's licence. If you don't already have a will, make one, and it's worth reviewing your insurance coverage, particularly if you were living separately before you got married.
Making the most of tax breaks
The married couples allowance was withdrawn for everyone except pensioners in 2000, but the government is proposing a new tax break for married couples and civil partners by 2015, which could offer couples a tax saving of up to £150 a year. These plans are at a very early stage, but there are already several ways to reduce your tax bill if you're married or in a civil partnership. They include:
Transferring savings and assets
Don't forget that all interest from Individual Savings Accounts (ISAs) is tax free and, as a couple, you can save £23,760 in ISAs this tax year. You can place the full amount in Stocks and Shares ISAs (and avoid Capital Gains Tax (CGT) on any share profits) or put up to £11,880* of your combined allowance in Cash ISAs(2).
*Allowance applies from 6 April 2014 to 30 June 2014. From 1 July 2014 the allowance will be £15,000.
Capital Gains Tax (CGT)
When you sell assets such as shares or a second home you're liable to pay CGT on any increase in their value since you acquired them(5). But transfers between husband and wife or between registered civil partners don't attract CGT, so this means you're free to switch assets between you to make the most of tax allowances.
Currently, capital gains under £11,000 a year are tax free. And you can double this by transferring assets into your joint names, ensuring you don't pay tax on the first £22,000(3) of your gains.
Alternatively, if you and your partner pay different rates of tax, you might prefer to keep assets in the name of the lower earner, as rate of CGT for higher- and additional-rate taxpayers is 28%(4).
Similarly, you can transfer savings into the name of the lower-earning partner in order to pay less tax. Savings interest is normally taxed at 20% before you receive it. If you're a higher- or additional-rate taxpayer, you'll owe more tax, but if you have a low income you might be able to claim some tax back.
Being married or in a civil partnership usually entitles you to death benefits from your partner's pension scheme. Many occupational pension schemes, for example, pay widowers a lump sum death benefit of up to four times their partner's salary. But bear in mind that the payment is often at the discretion of pension scheme trustees.
Another benefit to tying the knot is that married couples and civil partners can pass assets to each other without being liable for IHT, provided their permanent home is in the UK. Inheritance tax is usually paid on an estate when someone dies.
Married/civil partners also benefit from a transferable threshold for IHT. If, for example, your partner leaves everything to you when they die, they won't use any of their IHT-free allowance. It's then possible to transfer their unused allowance to you so that your estate benefits from an IHT-free allowance of £650,000 (tax year 2014-15), which is double the individual threshold(5).
- Parents can make tax-free gifts to help pay for their children's weddings up to £5,000, provided the gift is made on or just before the wedding/civil partnership date.
- Money can be a source of friction between couples so be upfront about your expectations and discuss new financial goals together.
- Every couple can save up to £23,760 tax-free in 2014–15 in individual savings accounts (ISAs) transferring savings and assets between spouses can reduce tax bills.
- Married couples can pass assets to each other without being liable for inheritance tax (IHT) and if they leave everything to each other, when the surviving spouse dies the IHT allowance on the estate doubles to £650,000 (Tax year 2014–15).
- Married couples are often entitled to death benefits from their spouse's pension scheme up to four times a partner's salary.
Remember that tax treatments will depend on your circumstances and may change