Article Merging lives and money: How marriage could impact your finances

Whether you’re getting married or entering into a civil partnership, there’s a lot to get excited about. It’s a huge milestone, signalling the start of your new life together with endless possibilities, from travelling the world to starting a family. But it’s important to think practically too. Merging your finances is a big step (if you want to), and you’ll need to think long-term so you can comfortably plan for your future together.

Financial planning as a couple

Ideally, conversations about finances should happen long before the big day. It’s important to know that you’re both on the same page, helping secure your financial wellbeing and giving assurance that you’re both striving for the same things.

Some questions you might want to ask each other could include:

• What are your financial aspirations?
• How do you see us sharing expenses?
• Is investing important to you?
• Should we rent or buy a home?
• How much debt do you have?
• Will we need to pay for school fees?
• When are you hoping to retire?
• What are your income goals?
• Do you have any protection policies, such as life insurance, critical illness or income protection?

However, having these conversations isn’t always easy. Discussing money still feels awkward for many people, with 81% of UK adults avoiding discussing their finances.¹ But given that finances can be a source of conflict among couples, it’s good to take time to figure out the ways you and your partner can have an open and constructive conversation about money. 

So how can you approach the subject? Approach things logically and practically. Having an open, honest discussion about shared goals can help make sure any financial plans are mutually beneficial, because there could be things to gain from merging finances.

Tax is one of those areas where a coordinated approach can be helpful. Married couples or those in a civil partnership can benefit from the marriage allowance, which can be a way to reduce your tax bill by up to £252, if one of you is a low earner with income below the personal allowance (currently £12,570) and the other a basic rate taxpayer.²

Similarly, you could transfer savings and other assets between each other to make use of both of your tax-free allowances and exemptions. By making full use of two personal savings allowances, dividend allowances and capital gains tax (CGT) annual exemptions, you could potentially pay less tax.

Marriage and pensions

One of the biggest things to consider will be retirement and how you’ll finance it. As life expectancies increase, we can expect to spend more of our life out of work, and so having enough money to live comfortably will be essential.

There are several questions you’ll probably want to consider, such as:

• Do we both have private pensions, and if so, how can we make the most of them?
• What are your retirement income goals, and how do you plan to achieve them?
• What are your priorities for retirement?
• Will our marriage or civil partnership impact any pension entitlements?
• Will we both be entitled to the full State Pension?

Given that a couple could need around £59,000 a year to enjoy a comfortable standard of living in retirement.³ Having conversations now can put you on the path to financial security in later life, so it’s never too early to start.

Private Pension

Effectively managing your private pensions can be one way to achieve your combined goals. Making the most of employer contributions can be worthwhile too.

Work out as a couple how much you can afford to pay into your pensions and discuss investment strategies and how much risk you’re willing to take. For example, you might prefer a lower-risk strategy with lower yields that protects your savings, or to invest in an environmentally sustainable way. To help you choose in a way that aligns with your preferences, values and goals, we recommend speaking to a financial adviser to help put you on the right path. You can find a financial adviser on MoneyHelper. There may be a charge for this. 

Whatever your risk appetite, focusing on your pensions together can have long-term benefits for you and your family. Make sure that you complete and update your nominated beneficiaries so that your pension provider knows who you want to benefit when you die. They will take this into account when deciding on who to pay when you die.

State Pension

Don’t overlook the State Pension either. It’s important to know that you’ll both get the payments you expect when you hit retirement, so make sure to check your National Insurance record. And, if one of you is on a low income while raising children, remember you can register for Child Benefit to get National Insurance credits. This applies even if your partner earns over the Child Benefit threshold. Doing so means you won’t have gaps in your record, which will then count towards your full State Pension. 

There may be other things you can do to maximise your State Pension. For example those who are already retired may be able to increase their State Pension through their spouse. Consider what would happen if one of you were to die as well, as there are some cases where the State Pension can be inherited. This will depend on when you reached State Pension age, your partner’s National Insurance record and when they died. If you’re unsure, contact the Pension Service to check what you may be entitled to.

Inheritance matters

Marriage can provide valuable tax advantages not only during your life together, but also when it comes to passing on your estate. Any inheritance is greatly impacted by your legal commitment to one another.

This is because there is no Inheritance Tax payable on a legacy to a spouse or civil partner. This applies even if the estate is worth more than the £325,000 tax-free threshold.⁴ Any unused tax-free threshold is transferred to the spouse, so on their own death they’d have an allowance of up to £650,000.⁵ This means the surviving spouse’s personal representatives could only need to pay inheritance tax on anything over £650,000.⁵

Individual savings accounts (ISAs) can be inherited too. This means that in addition to your own ISA allowance, your ISA can be topped up to include the value of your partner’s account at the date of their death or the later date when their ISA is closed, giving your savings a tax-free boost. Though bear in mind, the proceeds will still form part of their estate.

Yet in order to make sure your wishes are properly acted upon, writing a will is essential. This should always be something that’s discussed with your partner so you both know exactly where you stand, particularly if children or large amounts of money are involved. It should be regularly reviewed too, and should be updated with any big milestone or new investment. This will ensure that your time spent carefully planning your finances together hasn’t gone to waste, and you can continue to provide for each other even in death.

Futureproofing your finances

Formalising a relationship through marriage or civil partnership can be a hugely important step for your finances.

By planning ahead and having meaningful conversations, you can focus on what’s really important to you as a couple, boosting your financial wellbeing and resilience in the process. Check out our Financial Wellbeing Index for more ways to understand your circumstances and create your own personalised plan.