Financial guide to marriage

As a society, we’re becoming much more aware of the complications of not talking about money, especially when it comes to being in a relationship.

This guide will explain what to consider financially from the moment you meet someone, to marriage and beyond.

In this guide we will answer:

• What is the Marriage Allowance?
• Will a will help me avoid inheritance tax?
• Are there ways to save on income tax?
• Will I be jointly responsible for my partner’s debt?
• Who do I need to notify to get married?

Marriage allowance

The marriage allowance is paid to couples where one partner is a basic-rate taxpayer and the other doesn’t earn enough to pay tax.

Meet Laura. She is a teacher earning £40,000 per year, so she pays tax at the basic rate of 20%. Sunil is her partner. He earns £10,000 a year, under the rate at which you have to start paying tax.

Laura and Sunil are eligible for the marriage allowance, meaning:

• Sunil can transfer 10% of his personal allowance, currently set at £12,570, to Laura
• Laura has a new personal allowance of £13,827
• So £1,257 that Laura would have been taxed on at 20% is now tax-free
• Laura (and Sunil, of course) get to keep an extra £252 of her salary

It only takes a few minutes for the non-taxpayer to apply, which will adjust both partners’ tax codes meaning you won’t have to apply for it every year.

Read more: How to check if you’re eligible for the marriage tax allowance

Inheritance tax

Everyone can leave up to £325,000 free of inheritance tax (IHT) when they die. There are perks in managing money if you are married or in a civil partnership:

• All your assets and belongings can be passed to a surviving partner IHT-free
• When the second partner dies you can utilise both allowances, meaning married couples can leave £650,000 IHT-free
• If you leave the family home to your children or grandchildren, you each get another £175,000 added on top of your usual IHT threshold = “residence nil-rate band”
• In the 2022-23 tax year, a couple can pass on £1million free of inheritance tax

Read more: ‘Can I avoid inheritance tax without getting married?’

Income tax

Married couples and those in a civil partnership can reduce the income tax they pay on savings, investments or on a rental property.

If one of you pays a lower rate of tax than the other then ownership of assets can be switched to the lower-earning spouse.

For example, Laura gets a promotion to head teacher:

• Now she earns £90,000 a year
• She also receives £15,000 a year from a rental property
• Total income tax bill = £30,432 for 2022-23

Sunil leaves his job to look after the kids. If Laura’s rental property – and therefore the rental income – is transferred to Sunil then the tax reduces to £23,432, saving £7,000.

Sunil later decides to return to the library but as a full-time manager:

• He now earns £35,000 a year
• Laura transfers the £15,000 rental income to Sunil
• Sunil’s tax bill increases by £3,000 to £6,498
• Laura’s reduces by £7,000 giving an overall tax saving as a couple of £4,000

Note: you must actually alter the ownership of the asset, often done by a Declaration of Trust or Deed of Gift.

You need to be aware of potential complications. Questions that you need to ask yourself include:

• Does any mortgage complicate a transfer?
• What is written in your wills?
• Moving a property from one to another could affect who inherits if the couple are leaving their assets to different beneficiaries, say children from previous relationships
• Will the spouse who has the asset in their name walk away with it if you split? 

Read more: Who gets my share of the property if I divorce or die?

Capital gains tax

Capital gains tax is a tax on the profit made when you sell an asset and is one for couples with investments or more than one property.

• The current tax-free allowance is £12,300
• Profits above this will be taxed at between 10% and 28% – depending on your earnings
• A partner likely to exceed the tax-free allowance can give some of the assets to your spouse for them to sell – taking advantage of their allowance
• Pooling assets mean you double the amount you can make – £24,600 – before capital gains tax is due

If you’re not married or in a civil partnership and you tried to give or sell an investment to them, this transaction would be liable to capital gains tax.

ISA allowance

There is a one-off additional ISA allowance for a bereaved husband, wife or civil partner.

• You can invest up to £20,000 tax-free in an ISA every tax year
• If your spouse or civil partner died, leaving say £30,000 in their ISAs, you can add £30,000 into your own ISA on top of your £20,000 allowance
• The additional allowance was introduced to enable surviving spouses to keep accumulated ISA funds within a tax-free wrapper

See our round-up of the best stocks and shares ISAs.

Pensions

What your spouse or civil partner inherits depends on your retirement plan and your personal circumstances.

• Final salary pension
  • If your partner has retired when they die, you typically inherit at least 50% of what your partner is receiving
  • If they die while still working you are normally entitled to a lump sum

• Defined contribution pensions
  • This where you build up your own pension pot
  • What the surviving spouse will receive is less straightforward
  • Was the money used to buy an annuity or provide a drawdown pension?
  • How old was the person when they died?

Check your retirement plan to ensure that you have completed a nomination form setting out who your pension benefits should go to if you die.

• State pension
  • There are some circumstances where you can inherit parts of your spouse’s state pension
  • It depends on the number of years they’ve paid national insurance: the longer they’ve worked, the more you’re likely to get
  • Use the government’s online assessment tool to see what you may get if your spouse dies

Find out more about how pensions work with our guide to Pensions.

Marrying someone with debt

If you say “I do” to someone who has also said “I do” to credit cards debt and loans, don’t worry:

• You are not responsible for credit card debts or loans taken out in your partner’s name only
• You will never be contacted by lenders for payment
• Their debt shouldn’t affect your personal credit score either

BUT: Take out joint debt with your partner, either before or after tying the knot, and you will both be equally responsible for paying all of the money back:

• Your partner will be on your credit report as a financial associate
• If they struggle to keep up with repayments, the lender can contact you for all of the outstanding debt
• If you apply for new credit, lenders may look at your partner’s credit history in addition to your own
• Your credit rating could be affected, which could affect your ability to obtain credit, and the interest rate you’ll get

Remember: it’s good to talk! Be honest about any debts you have and look at the best ways of managing money for your financial goals.

It may be best to stick to separate bank accounts instead of combining finances if one spouse has debts they need to get on top of, or wildly different spending habits.

Read more: What happens to debts when you die?

Should you get a prenuptial agreement?

A prenuptial agreement is a legal agreement that sets out how assets should be divided between a couple if they split. 

Prenups are no longer seen as something only for Hollywood celebs:

• A pragmatic way to reduce the chance of an acrimonious break-up
• Suitable when one half of the couple has significantly more assets than the other i.e.
  • own a home
  • have large inheritance
  • are a business owner
  • marrying later in life

The Bank of Mum and Dad is one reason behind an increase in the financial picture with parents wanting to know their investment in their child is protected in the event of a divorce.

Prenuptial agreements are not automatically legally binding but they will be upheld by a court if:

• The agreement is freely entered into
• It is made at least 28 days before the wedding
• Both parties receive independent legal advice for their financial futures
• There has been disclosure about all financial circumstances
• Both parties understand the implications of the agreement
• The agreement is fair and meets both parties’ needs

A simple prenuptial agreement that ring-fences a specific asset, such as an inheritance, would cost around £2,000 or more in legal fees.

Should you change your will?

In England and Wales marriage or forming a civil partnership automatically revokes any previous will, leaving it invalid.

Don’t make a new one and the law of intestacy decides how your assets are divided when you die:

• You can’t assume everything will go to your spouse
• This depends on how much you leave and matters such as whether you bought your home as joint tenants or tenants in common
• If you have children or grandchildren, how much they are legally entitled to will depend on where you live in the UK – but if you make a will for your financial future, you can decide this yourself.
• Find out more: Do I need a will?

Who to notify when you marry

If you change your name when you marry you will need to tell various organisations so they can update their records. This list will help you conquer the lengthy process.

• HM Revenue and Customs

• HM Land Registry

• The passport office

• The DVLA for your driving licence and car registration

• Your local authority for council tax and the electoral roll

• Your employer

• The Student Loans Company

• Bank or building society

• Mortgage provider

• Pension provider

• Doctor and dentist

• Car insurer

• Your home insurer

• Utility companies

Making a budget as a married couple

Making a budget as a married couple is key to keeping your family finances – and your relationship – ship-shape.

1. Talk – Work out what your financial goals, strengths and weaknesses are, particularly your personal spending habits, and how you can financially complement each other
2. Be honest – hiding income or wealth is disastrous for a couple and won’t help you reach your goals
3. Identify financial goals – Figure out what it is that you want to achieve together as a couple, your financial goals, perhaps it is to buying a house, save for your children’s future or have a retirement plan
4. Be realistic – You will more likely be able to stick to a budget if you make allowances for spending a little on what you enjoy. There are plenty of free apps you can use to track your spending if you think you will struggle
5. Cut costs – work out where you can trim your spending, perhaps the online streaming subscriptions aren’t value for money anymore
6. Meal plan – having an idea of what you will eat through the week can make a big impact on your grocery spending
7. Think about the future – ensure that you build up a financial safety net

We have more tips on our guide to budgeting.

What is the best way for married couples to handle finances?

There is no one size fits all for how you should start managing money as a couple. The key is to sit down and talk about what will work best for you, as individuals and as a couple, for example, you could:

• Share the bills 50/50 or decide to opt for a different split depending on how much each person earns
• The main earner could pay an allowance to the other
• Before you combining finances, think about whether separate bank accounts rather than joint accounts might be better, especially if one partner has a lot of debt they are paying off
• Have a shared savings pot with a shared goal
• Make sure you both understand the family finances and financial decisions are shared
• Look at your financial picture as a whole, now and in the future
• Think about independent financial advice to help you with financial goals
• Keep talking about money

Read more: How to plan a monthly budget