Married couples could make huge savings of up to £190,000 | Personal Finance | Finance

March 14, 2025 3,745

Marriage is the ultimate display of love, you might say. But this year, a multitude of Brits may be uttering the words “I do” driven more by financial pragmatism than romantic sentiment – in an effort to reduce their future tax liabilities. The concept has gained momentum after Martin Lewis broached the subject on his Money Show Live Valentine’s Day special, sparking a wave of social media and forum discussions from individuals eager to delve deeper.

The consumer advocate disclosed that nearly two million wedded couples and civil partners could be eligible for a tax rebate exceeding £1,200, simply by being in a committed relationship. This annual refund, valued at £25 for the 2024/25 fiscal year, can be claimed via the Marriage Tax Allowance from HM Revenue and Customs (HMRC).

Claims submitted before April 5, 2025 can be retrospectively applied for up to four years, dating back to the 2020/21 tax year. This implies that some couples could potentially secure tax relief amounting to as much as £1,260.

To assist people in navigating the process and demystifying the rules, Josh White, a financial expert at probate lending firm Level Group, has addressed the most commonly posed questions.

Historically, inheritance tax hasn’t been a worry for most people. However, experts forecast that new regulations will double the number of families grappling with an inheritance tax bill by 2030, impacting one in ten households.

Many people are keen to legally minimise their tax obligations where possible, and marriage can offer a relatively uncomplicated route to achieving substantial long-term savings – although hopefully you actually like each other.

Tax benefits for married couples

Marriage comes with its fair share of financial perks, one of which is the Married Couple’s Allowance – a nifty benefit that could see couples pocketing savings of up to £1,108 each year. But it’s in the event of a partner’s death where the tax advantages truly shine, particularly concerning inheritance tax (IHT).

IHT is charged on the estate (which includes property, belongings like cars, and cash) of the deceased. Currently, there’s a tax-free allowance of £325,000 per person, with a standard 40% tax levied on any value over this threshold.

However, for married UK residents, any estate left to the surviving spouse is completely exempt from IHT, no matter the total worth. When the second spouse dies, their heirs, possibly your children, might qualify for the ‘transferable nil rate band’, potentially doubling the IHT threshold to £650,000, assuming it hasn’t been used before.

There’s also the substantial “residence nil rate band” (RNRB), providing additional relief for those bequeathing their home to direct descendants. This extra allowance offers a £175,000 tax-free threshold, which can be doubled for married couples if the full tax advantage remains untouched.

Under the RNRB, surviving partners can leave a home to their offspring even if it wasn’t the exact residence they shared with their late spouse. Furthermore, the surviving partner doesn’t need to have co-owned any property with their deceased partner to qualify for this allowance.

Similarly, assets transferred between spouses during their lifetime are exempt from inheritance tax, as long as they’re gifted at least seven years before the donor’s death.

Research suggests that over a lifetime together – say, 50 years – a married couple could benefit from up to £190,000, mainly from savings on Inheritance Tax.

Civil partnerships and cohabiting couples

Those in a civil partnership can also enjoy the same benefits as traditionally married couples. However, the outlook isn’t as positive for cohabiting partners.

Many mistakenly think that living together grants the same inheritance rights and tax benefits as those enjoyed by married couples. Unfortunately, ‘common law spouses’ do not automatically inherit everything, nor do they receive the same financial privileges as their married counterparts.

If you co-own a property and haven’t named your partner as your ‘heir’ in a will, they won’t automatically inherit your share of the property when you die. Instead, it will be passed on to their next of kin, which could be their parents or a child.

What happens if you divorce later?

In the event of a divorce, the tax benefits that married couples enjoy upon death will no longer apply to you or your former spouse. However, any assets gifted to you by an ex-spouse during marriage will remain exempt from Inheritance Tax (IHT), provided the gift was made at least seven years before their death.

What if you choose not to marry?

For those in the UK who are not married or in a civil partnership, using trusts can be a legitimate way to lessen the impact of inheritance tax, although it requires careful planning.

By transferring assets into a ‘Lifetime Gift Trust’ while you’re alive, for example, the value of these assets is no longer considered part of your estate after seven years. This means they may not be subject to IHT upon your death.

However, it’s important to remember that trusts come with various conditions, and HMRC closely scrutinises these and other strategies designed to avoid tax payments. Using trusts solely for tax evasion may not be effective or could result in unexpected consequences, so it’s always recommended to consult a financial advisor first.

Claiming backdated Marriage Allowance payments

You can make a backdated claim for the Marriage Allowance for any eligible tax year dating back to April 5, 2020. As a result, your partner’s tax liability will decrease according to the respective Personal Allowance rate of the years being backdated.

HMRC has clarified that bereaved individuals are still eligible to claim Marriage Allowance even if their partner passed away after April 5, 2020. Those looking to make a claim can reach out for assistance via the Income Tax helpline at 0300 200 3300, with comprehensive information available.
The tax authority further advises: “If your partner was the lower earner, the person responsible for managing their tax affairs needs to phone.”

A summary table highlights the allowance values for various tax years: