Five ways for couples to make their money go further

Being in a couple can already help you keep money in your pocket by splitting expenses like rent, council tax and utilities. But is there any reason (besides the obvious everlasting love) to take the relationship a step further and officially tie the knot?

When it comes to tax breaks, many benefits as a couple will only be available to you once you are married or in a civil partnership. Both of these mean entering into a legal relationship, requiring witnesses and a trip to the registrar.

Unfortunately, the tax breaks do not apply to those who live together but aren’t legally tied, even in the case of a long-term partnership.

1. Cutting your tax bill

Marriage allowance is a neat way for a married couple or those in civil partnerships to cut their tax bill.

The lower earner can transfer up to £1,260 of their personal allowance (the amount of earnings that aren’t eligible for tax) to their husband, wife or civil partner. In doing so, the partner’s tax bill is reduced by up to £252 in a tax year.

To be eligible, one person must earn less than the personal tax-free allowance, which is £12,570 per year. The other person must be within the basic income tax rate, which is £12,571 to £50,270.

If you’re in Scotland, your partner must pay the starter, basic or intermediate rate, which usually means their income is between £12,571 and £43,662.

For those wishing they’d realised this was an option years ago, you’re in luck. You can also backdate any claims to include any tax year since 5 April 2020 that you were eligible for marriage allowance.

2. Transferring assets

Although individual savings accounts (ISAs) cannot be held jointly with your spouse or civil partner, you can each contribute up to £20,000 a year, meaning £40,000 of tax-free contributions between two people.

Married couples and civil partners can also benefit from “Bed and ISA”. If one partner has assets that are subject to capital gains tax (CGT), they can be transferred to a spouse who has additional ISA allowance left to use, becoming a tax-free asset once held inside the tax wrapper.

In the case of one partner passing away, if a spouse or civil partner is named as the inheritor of the ISA, this will be tax free. The partner can add this amount to their own ISA, even if it exceeds the yearly contribution limit.

3. Minimising capital gains liabilities

For those that have already maxed out their limits within ISAs, additional assets can become subject to CGT unless held inside a Self-invested personal pension (SIPP).

The rules of CGT have faced a clampdown in recent years, as the threshold for exemption has dropped from £12,300 to £3,000. Basic rate taxpayers are charged 18% on gains made from 30 October 2024 while anyone above this band is charged 24%.

A bit more wiggle room is available to those who are married or in a civil partnership, as assets can be transferred between the two parties. By passing some of your assets to your partner, you can double your limit of profit that can be realised tax-free by using up your £3,000 allowance and then transferring assets and selling in your partner’s name to utilise their £3,000 allowance.

4. Contributing to a partner’s pension

Couples can work to maximise both of their pensions by making a third-party pension contribution. For a non-earning spouse or civil partner, you can contribute up to £2,880 net in each tax year to your partner’s pension. For a working partner, contributions between two parties combined must not exceed the pension holder’s relevant earnings in a tax year.

Only the person receiving the money for their pension will receive the tax relief on this amount, and this will be dependent on their earnings. Often, providers will only accept money from an account that is in the pension holder’s name, so money may have to be transferred first as a gift to the partner, before they can contribute it to their pension.

5. Inheritance tax between couples

Inheritance tax offers the benefit of allowing all assets to be passed on to your partner tax free. But what happens when both partners in a marriage or civil partnership have passed away?

Currently, there is a threshold of £325,000 of tax-free inheritance when someone dies.

If the threshold has not been fully used when the first person in a marriage or civil partnership dies, the unused part can go to the surviving spouse or civil partner.

This means that basic tax-free allowance when the spouse or civil partner dies can be up to £650,000 if none of their £325,000 threshold was used when the first partner of the coupled died.

There are few rules to bear in mind. The threshold can only be transferred if the couple were married or in a civil partnership when the first death occurred; and the request is sent to the taxman within two years of the death of the surviving spouse or civil partner.