If you find yourself asking the question “Should I get married for tax reasons?”, you probably already know that the answer is going to be “Yes.” There are many long-term, committed couples out there who for one reason or another have never got around to tying the knot. Perhaps one (or both) of you has been married before, and has never been keen to repeat the process. Perhaps you’ve always preferred to avoid the staid, traditional image of being a ‘married’ couple. Whatever the reason, there comes a point in life when the tax advantages of being married or in a civil partnership may start to weigh heavily on your mind.
If you and your partner have been together many years but are unmarried, and one of you dies, contrary to popular belief, English law does not recognise the concept of a common law marriage. Without a Will, you could end up with nothing. Even if you do inherit from your unmarried partner under their Will, or make a successful claim on intestacy, if their estate is reasonably substantial, you will have to pay a large inheritance tax bill beforehand, leaving you much less well off for the rest of your life. Not to mention the unappetising prospect of a second 40% tax charge on your own death on the same assets, before your children (or other beneficiaries) receive them.
The law offers some serious tax perks to married couples, when it comes to death and taxes. Primarily, there is the opportunity to transfer unlimited amounts of assets from one spouse to the other on the first death, tax free. Marriage postpones the inheritance tax hit until the second death, thereby leaving your spouse much more financially comfortable in their old age. This is well worth considering for any long-term, happily unmarried couple in their later years.
Should I form a civil partnership for tax reasons?
For those who find the idea of marriage unpalatable, There is an interesting new option which became available only at the end of last year, and which could solve your tax problem (romantic, I know). How about forming a civil partnership? It’s now available to opposite-sex couples, offers all of the same tax breaks as marriage, and is a way to ensure that your long-term partnership is recognised legally, without the label of being ‘married’. I have seen several long-term couples recently who have decided to go down this route.
Do I need to update my Will if I get married or form a civil partership?
Yes, almost certainly. Marriage or forming a civil partnership revokes your existing Will, unless the Will was expressly made ‘in contemplation of marriage/civil partnership’, i.e. it includes a clause specifically referring to your plans to marry. Most Wills do not include this, and so your Will will need to be updated to reflect your new, tax-efficient partnership status.