Forget Cupid, you should pop the question this Valentine’s Day to help protect your wealth and that of your loved one for the long term, says Sophie Wettern
It’s that time of year again… the shop windows are full of heart-shaped chocolates and sparkly cards, restaurant owners are preparing for the big night and the flower sellers are stocking up on red roses. Romance is in the air and the popularity of marriage is on the rise again after more than 40 years’ decline – maybe all those jewellery advertisements are working. But love aside, why else should you consider getting married this Valentine’s Day?
For starters, marriage makes a significant difference to a couple’s status in the eyes of the law: a couple may have been together for 50 years, and have lived together for all of that period, but co-habiting with someone does not make you their spouse (for which read civil partner and same sex partner as well of course) legally – no matter how many times you’ve done the washing up…
This becomes particularly significant when considering what happens in the sad event that one of the couple dies. If you are married, everything that passes to your spouse is free of inheritance tax. He or she will take on any unused portion of your nil rate band (the amount of your estate that passes free of inheritance tax, currently £325,000 per person). This does not apply if you have never taken the plunge into matrimony.
Let us consider a couple with two children where each partner leaves their entire estate to the other: if the couple is married, the estate of the first to die passes free of inheritance tax to the survivor and with the inherited nil rate band, the survivor can pass on up to £650,000 free of inheritance tax on his or her subsequent death. However, if the couple are not married, inheritance tax at 40 per cent will be payable on the first death, on any assets over £325,000 left to his or her partner.
There’s also the question of who you would want to inherit your estate. Although, three quarters of us plan to leave money to our loved ones when we die, 58 per cent of the UK’s adult population has not made a will. If you die without a will, your estate will pass under the statutory intestacy rules. This is not good news.
For those who are married, your spouse automatically inherits at least a proportion of your estate if you were to die without leaving a valid will. However, if you are not married, your partner would not automatically inherit your assets. Instead, your estate would bypass your partner and pass to your children, or if you do not have any, to your parents, or, if they have passed away, to your siblings. Of course, you would hope that anyone who did inherit your estate would act as you would have wished and would support your partner, but surely it is preferable not to have to rely on this?
So, I hope that, uncupid-like, I have convinced you of the long-term benefits of matrimony – but what about the short-term advantages? Well, the moment of marriage can also be a chance for those who wish to make gifts to do so tax-efficiently. You can give cash gifts of up to £1,000 per person to someone on the occasion of their wedding, without the gifts being subject to inheritance tax. If the blushing bride (or groom) is a relative, so much the better. You can give up to up to £5,000 tax-free to a child and up to £2,500 tax free to a grandchild or great-grandchild.
For those of you who are still wavering, if you are UK resident but not domiciled and benefitting from the remittance basis of taxation, there’s another reason to consider marriage. You may think that, because you are not married, you fall under the radar of HMRC. However, this is not the case. A cohabitee is a ‘relevant person’ for the purposes of the remittance basis – so, for those among you who are living with your partners have not yet taken the matrimonial plunge, you are subject to all of the tax disadvantages of marriage without receiving any of the fiscal advantages.
At the end of the day, there is more to marriage than just the legal aspect, but for those of you who have been sitting on the fence, romance aside, there are many reasons why it’s a good idea to pop the question around this time of year.
Sophie Wettern works at boutique private wealth law firm Maurice Turnor Gardner LLP