Living together unmarried used to be seen as shameful. Today one in five couples – around 3.8 million – co-habit and it is perfectly normal. Instead, a growing number harbour a very different source of embarrassment – they have married in secret.
I have a surprising number of clients in recent years who have decided to get hitched without telling friends and family.
One couple in their 60s do not have children and all their money will go to charity when they die. They married to save Inheritance Tax (IHT). This is one of the biggest financial benefits of marriage and civil partnership. We all have a personal allowance of assets we can pass on tax-free when we die, known as the ‘nil-rate band’. Currently this stands at £325,000. There is also a ‘residence nil-rate band’ of £150,000 (rising in April to £175,000) that applies to a residence passed on death to a lineal descendant. Broadly, anything above these bands is taxed at 40%.
When those in a marriage or civil partnership die they pass on their assets to their partner without triggering IHT and also pass on, in effect, their nil-rate bands. So, by April couples who are married or in civil partnerships will be effectively able to pass on £1m tax-free.
For my clients their marriage means the charities they support will inherit many thousands more than they would have done.
I have other clients who married secretly in their 60s for the pension benefits. The husband is unwell. They both have substantial final salary pensions, but his pension provider only recognises spouses and civil partners when it comes to death benefi ts. Now they are married, if he dies she will receive two thirds of his pension, worth around £30,000 a year. Likewise, if she dies first, he will receive a proportion of her pension.
Why the secrecy?
But why marry in secret? The first couple did so because they see religious overtones in the ceremony (even though only a quarter of the 250,000 marriages that take place here each year now happen in a church). They did not see any significance in the event to justify a big ceremony and celebration. I think this applies to many couples. They start out living together and testing the water. The relationship is successful without the need for rings and vows. Before they know it they have been together for many years. Neither has the inclination or energy to organise the occasion and they can feel too embarrassed to do so. Sometimes it can be because of costs – a secret ceremony can be very cheap. Sadly, family is very often the driving force for secret marriages. The second couple referred to above had lived together for years but always avoided marrying because they could not face the acrimony of having divorced parents in the same room spoiling the ceremony. Even in their 60s it was easier to just do it quietly. Another client entered into a civil partnership in a secret ceremony because he knows his family are disappointed not to have grandchildren He wanted the financial benefits of a legal commitment; not the stress of the ceremony.
And the financial benefits of marriages and civil partnerships, as has been suggested, can be significant. We have talked about pensions and IHT. Another perk is the ability to pass on the tax-efficient benefits wrapped within ISA savings on death.
You may be pleased to hear there are benefits in life too! Married couples and civil partners can pass assets between each other without triggering a charge to capital gains tax (CGT). There is also a ‘marriage allowance’, which can help low-income households reduce their income tax bill by as much as £250 a year. It allows you to transfer £1,250 of your personal allowance to a husband, wife or civil partner if they earn more than you, subject to limits.
Of course, to enjoy these financial benefits you have to be genuinely married or in a civil partnership. ‘Common-law marriage’ means nothing in law. I had one client who had been separated from his wife and living with a new partner for many years. He had, however, failed to change his will. When he died suddenly, his assets went to his wife, who gladly took everything but the dog.
Why marry at all?
Of course, marriage is not for everyone. If you do not think the relationship is sustainable then it is foolish to marry, especially as divorce settlements favour married and civil partners over cohabitees. There can be other financial penalties too. If you are a widow enjoying a widow’s pension, remarrying may bring an end to that pension. One of my clients was married to a GP and would have lost a substantial widow’s pension if she were to remarry. In the old days you asked a father’s permission to propose. Perhaps these days before you go down on one knee, it might be best to have a chat to your financial adviser.