What does your relationship status say about your finances?

Posted on: 13th February 2020 in Finance

February is a unique month. It’s the only month that has less than 30 days, and it’s the only one that has an extra day added to it every four years (for the most part). Mind-blowing facts aside, February is probably best known for Valentine’s Day. As this is the month we celebrate romance, it feels like the perfect time to look at the link between your relationship status and your finances.

Singletons vs couples

Research carried out by Lloyds Bank, found that single life costing more might be a myth. If you are single this Valentine’s Day, it could be financially beneficial. The banking group found that single people spend roughly £300 less per month on living costs. That means single people end the year £3,600 better off than those in a relationship. Single people might be spending less, but they are also saving less. Couples in the UK are saving around £234 per month, compared to singletons who are putting away £193 for a rainy day. Living costs are one thing, but that doesn’t tell the full story. Married couples benefit from a range of financial perks. With that in mind, let’s look at the financial benefits of marriage. Let’s look at the financial benefits of marriage.

Financial benefits of marriage

It probably comes as no surprise that Valentine’s Day is one of the most popular days of the year for proposals. There are several financial advantages married couples have over non-married couples which we will look at.

Marriage tax allowance

This is a government incentive which lets you transfer your £1,250 yearly tax-free allowance to your spouse. This amounts to a saving of £250 for this tax year (2019/20). The total saving increases year-on-year and can be backdated by four years. This means that if you were to claim for the previous four years, you would get up to £1,150. Marriage tax allowance does have some specific conditions, meaning it won’t apply to everyone. One person needs to be a non-taxpayer. In the UK, that means they would be earning less than £12,500. The other person needs to be a basic rate taxpayer. This means they are earning less than £50,000 at a tax rate of 20%.

Not having a will

Having a will in place is always recommended as it leaves nothing to chance. If you don’t have a will and you’re not married, your partner may get nothing. Married couples do have some protection through a law called intestacy rules. This one is specific to the UK, and different parts of the UK implement intestacy rules differently. Expats living in certain countries like the UAE have no protection, even if they are married. If you are working abroad long-term, make sure you have a will that is compliant with local laws.

Inheritance Tax

We saved the best for last. Excited? You should be. Probably one of the most significant financial benefits of marriage involves Inheritance Tax (IHT). IHT is applied at a rate of 40% to any of your assets over the value of £325,000. That threshold of £325,000 is referred to as a tax-free allowance. Let’s say you leave £500,000 worth of assets to your loved ones. £175,000 would be taxed at 40%. Cash, property, cars, basically anything you own is considered to be an asset. Married couples can leave assets to their surviving partner free of IHT. There is another significant benefit of marriage regarding IHT. Remember that tax-free allowance of £325,000 we just spoke about? If you leave your assets to your wife or husband, they also inherit your tax-free allowance. This means that if they want to leave assets when they die, they now have a tax-free allowance of £650,000 before IHT is applied. The financial benefits of marriage There are financial pros and cons associated with any relationship status. Marriage definitely provides security for your partner, as well as other advantages financially. Of course, we wouldn’t want you to propose this Valentine’s Day just for financial reasons. After all, that’s not very romantic! Women don’t traditionally propose to men, it’s usually the other way around. A leap year is an exception when traditions are broken and women can propose. Bear in mind, if you’re a complete traditionalist then you should wait until February 29th. If you do decide to pop the question, you will want to set yourself some savings goals. After all, the average cost of a wedding in the UK is a staggering £32,000 according to experts. To find out how our experts can help you reach your goals, contact us using the form below.