As Prince Harry and Meghan Markle announce their engagement, we ask a range of financial experts to explain the monetary benefits of tying the knot – even if the royal couple themselves may not need the tips.
One of the financial benefits most commonly associated with marriage are the advantages of inheritance tax (IHT) planning.
As Irwin Mitchell Private Wealth partner Kelly Greig explains, there are many financial reasons for couples to marry – one being that those who choose to leave assets in a trust to provide income for their spouses will benefit from the spousal exemption, meaning there is no IHT to pay on these.
Married couples can also transfer assets between them during their lifetime without being subject to the ‘seven year rule’ – where tax is payable on transfers of assets if the transferor dies within the next seven years – she said, and lifetime transfers between spouses are also exempt from capital gains tax.
Since spouses are not subject to IHT rules, Greig continues, the IHT nil rate band will not have been used when the first person dies, and so it can be transferred to the estate of the surviving spouse, reducing the tax payable on their death.
Married couples can also benefit from the residence nil rate band, meaning children from any previous relationships are automatically included within the definition of direct descendants – but children of unmarried partners are not. This currently provides an additional tax allowance of £100,000.
Also, any ISAs can be transferred to the surviving spouse at the first’s death. Their ISA allowance is not lost on their death, as it would be when passing to a partner instead of a spouse.
Greig adds: “One piece of inheritance advice we often give is to book an appointment at the Registry office. There are still huge tax advantages for couples to be married rather than cohabiting.”
More benefits
Extra benefits with the state pension is another plus to tying the knot, as Prudential senior technical manager Clare Moffat pointed out in her not-so-romantic Valentine’s day column earlier this year.
She explains that those who are married may be able to increase their own state pension benefits based on their deceased spouse’s pension entitlement, depending when the person became entitled to their state pension.
Congrats Megan and Harry. You’re above average. But we kinda knew that already. #RoyalEngagement pic.twitter.com/4B04FkRlwN
— Alistair McQueen (@HelloMcQueen) 27 November 2017
It is doubtful this one will apply to the prince and princess.
Moffat also points out that those married or in a civil partnership who earn less than £11,000 and have a spouse or civil partner who earns between £11,001 and £43,000, can transfer £1,100 of the personal allowance to the spouse or civil partner.
Mind you, with William worth a reported £40m, according to Business Insider, and US actress Markle an estimated $7m, this is another one the prince and his wife-to-be can probably rule out.
On the other, sadder side of marriage, Scottish Widows pointed out in October that women are left £5bn out of pocket every year because more than two-thirds of couples do not consider pensions during divorce proceedings. It would certainly be interesting to learn what any royal pre-nup might make of Markle’s pension benefits.
‘Don’t do it for the tax’
While we have listed a number of marital benefits, Informed Choice managing director and IFA Martin Bamford warns marriage is not something to be entered into solely for financial reasons.
“We’ve had a handful of clients who have weighed it up and decided from an inheritance tax-planning point of view, and from an overall tax-planning point of view, it made sense to get married,” he says. “It’s not particularly romantic – I think they were leaning in that direction anyway – and we weren’t pushing them towards it.
“It is a big commitment and it has big implications should the relationship break down in the future – I can’t imagine for one second that Harry and Meghan will be getting married without a pre-nuptial agreement and all sorts of legal implications in place. Don’t just do it for the tax benefits would be my message.”
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