The Hidden Financial Perks of Getting Married

Getting married can be a costly affair. Muslims in the UK for example could easily fork out £30k plus on the wedding alone. We tackled this in more detail in our YouTube video on how modern Muslim marriages are a £1.5bn black hole. More on that here.

However, there are financial perks to getting married and you would be remiss not to take advantage of them. This article will cover six financial perks of getting married.

Here’s a summary:

1. If your spouse earns less than the personal allowance (£12,570 for tax year 22/23)  use marriage allowance to transfer some of this allowance to you to save up to £252 in tax. 

2. Share assets with your spouse to maximize your tax-free capital gains and dividend allowances.

3. Being married can allow you to access pension benefits from both private and state pensions.

4. Reduce your inheritance tax bill by using a trust-based will to leave assets to your spouse tax-free. You could also transfer any unused tax-free allowances between spouses. 

5. Use the tax-free wedding gifts allowance to gift money tax-free to your loved ones on their wedding day.

6. Your car insurance could be cheaper as insurers tend to view married people as a lower risk compared to single drivers. 

Marriage Allowance

The first tip is a government scheme that can save you up to £252 in tax. If you are in a marriage with one basic tax-payer (earns between £12,571 and £50,270) and one non-tax-payer, then you could benefit from Marriage allowance.

This allows the non-tax-paying partner to transfer £1,260 of their personal allowance to their partner. The personal allowance is income upon which you don’t have to pay any tax and the threshold is currently £12,570. This could reduce your tax by up to £252, as you no longer pay 20% income tax on £1,260. You can also backdate your claim to include any tax year since 5 April 2018 if eligible. 

For example, let’s consider the married couple, Bilal and Sarah. Bilal earned £30k in the previous tax year whilst Sarah only earned £8k. Sarah then uses the marriage allowance to transfer £1,260 of her unused personal allowance to Bilal. This increases Bilal’s personal allowance to £13,830 and saves him £252 of tax that he would have otherwise paid on that £1,260.

Share assets tax-free

Married couples can transfer assets between each other with no tax liability. This allows you to maximize to take advantage of two lots of allowances.

In the UK, the current Capital Gains Tax (CGT) allowance is £12,300 and the dividend allowance is £2k. These allowances allow you to make capital gains and dividend income from investments without paying tax.

This effectively means as a couple you have combined allowances of £24,600 for capital gains and £4k for dividends. This could save you a lot of tax, particularly if your partner isn’t using their allowance.

Better yet if one partner pays a lower rate of tax than the other, you could use this rule to reduce your tax bill on any gains you both have above your allowances. For example, if Maryam is a higher rate taxpayer and transfers assets to Adam who is a basic taxpayer, any income from that asset will be taxed at a lower rate.

Pension Benefits

Being married can improve your pension benefits. This applies to both state and private pensions. For instance, many workplace, personal and private pension schemes will only pass on benefits to a surviving partner if the couple had been legally married. 

Spouses could also get a bigger state pension if their partner dies. They could inherit some of their partner’s pension. They could also receive extra payments from their partner’s pension contributions if they haven’t already built up the full basic state pension entitlement themselves. 

Practical tip: log in to your workplace pension and make sure you nominate an inheritor. 

Inheritance tax savings

We all want to ensure that when we die we can leave our loved ones in the best possible position. Therefore you want to make sure you minimize the inheritance tax due on your assets when you die. The inheritance tax rate is 40% and applies to all assets you have over £325k (with some exceptions).

The great news is that there is generally no inheritance tax due on any inheritance left to a spouse. However please note that as a Muslim, you must distribute your wealth after you die according to the sharia (Islamic law) and can’t just leave it all to your spouse.

Therefore for Muslims that do not live in a Muslim country, you will most likely need a trust-based will for this. This can help you to balance the tax benefits with following the shariah. For more on wills, check out our complete guide to Islamic wills in the UK and  our article on mitigating inheritance tax.

You can also transfer any unused inheritance tax allowances. For example, if Saad passed away with assets worth £200k, his wife Fatimah would be able to inherit his unused allowance of £125k. So now when she dies, she has an allowance of £450k. 

Tax-free gifts

In the UK, gifting money has the potential to be taxed. This is to prevent people from getting around inheritance tax by gifting all their money away before they die. Each year, every person gets a £3k allowance that they can gift as they please without paying tax. 

One nifty exemption to this is wedding gifts. There are extra tax-free allowances for cash gifts for weddings depending on your relationship with the giftee. Parents can give up to £5k tax-free and grandparents can give up to £2.5k tax-free. For anyone else, you can give up to £1k tax-free.

Cheaper car insurance

One unexpected potential financial benefit to getting married is cheaper car insurance. It seems that to some car insurers, being married demonstrates that you are more responsible.

This rings more true if you are in a high-risk bracket (e.g. under 25). So for all the youngsters out there, if you are unsure whether to marry young, perhaps this could be the icing on the cake!

Final thoughts

As you can see there are various financial perks to getting married. In some cases, these could amount to significant savings. So make sure you take advantage of these!

For more on personal finances and marriages, check out our article on what Islam says about finances in a marriage.