So you’ve decided you are going to get married and although you are surely only doing it because of your undying love for each other it is nice to know there are some financial benefits too. But getting married also brings with a shift in your long term financial thinking, you are now thinking for two or even for a few more if kids are something you want to consider.
Let’s look at some of the tax advantages first.
Standard Rate Cut off Point:
If you are a single person you can earn €33,800 per annum without starting to pay tax at the higher rate, currently 40% tax. If you earn anything below €33,800 you pay 20% tax, however if you earn less and don’t use up all your allowance it means that anything left over goes unused.
If both you and your new spouse earn over €33,800 each then you forget about this little trick. But if one of you earns less than €33,800, say you earn €25,000 and your spouse earns more, say €50,000 ordinarily it would mean you will pay tax at 20% on your €25,000 (less credits etc) and the €8,800 would go unused.
However, if you’re married you can instead move the unused €8,800, in this example, to your spouse so they now pay 20% tax on €33,800 + €8,800 = €42,600. In this example as a couple you will pay €1760 less in tax.
Unfortunately, a few years back the then minister for finance Charlie McGreevy stopped you transferring all of your €33,800 allowance to your spouse, for example if you weren’t working. (the rate was lower back then anyway)
At the time he justified the restriction of how much you could transfer because he said he was trying to encourage stay at home parents back into the workforce. The maximum you can transfer to your spouse is currently set at €9,000 meaning a total tax saving of €1800 for a married couple who can avail of this fully.
So a married couple can get a couple of different things.
|Couple||@ 20%||@ 40%|
|Married, One Earner||€42,800||Balance|
|Two Earners earning over €33,800||€67,600 total (ie €33,800 each)||Balance|
|Two earners, one earning over €42,800 second earning €24,800||Higher earns, gets their first €42,800 Lower earner gets all their €24,800||Balance|
You can also transfer any unused tax credits between you, except for employment expenses or the PAYE tax Credit (€1650).
One other thing which is sometimes not thought about is the Home Carer Credit, this is given to people who stay at home to mind the family and don’t go out to work. From memory, it was introduced as a result of a backlash from stay at home parents when the ability to transfer credits ceased. Typical Irish solution to an Irish problem, rather than reverse the decision we added a layer of complexity to an already complicated system.
Beyond tax reliefs and “couples” cinema passes (I am joking!) there are other financial advantages to being married, but first you must start to think of the shift that now exists in your finances.
As I said at the top of the piece, you are now thinking for two and possibly more if kids are in your plans. You also most likely have some money from wedding presents, what should you do with that?
Initially being a couple has some advantages when organising financial products, life cover or investments for example, or even buying a house. A husband and wife can pass assets between them before or on death without there being any taxes to pay.
Few people realise, before you were married if you died and passed the house you bought together, your now distraught partner could very well have resulted in an inheritance tax bill. So too could the proceeds of a life policy be subject to inheritance. That complication vanished as you walked up the aisle, tunnel, reception room, army tank.
When it comes to deciding what to do with the left over cash from the wedding, this piece is long enough without going into that here. But suffice to say you need to decide is the money to be used in the short term, less than 3 years, medium term, 3-7 years or long term 7 years plus. Or could you afford to put some of it away until retirement. This decision will help guide you as to where to go for advice. In my humble opinion if it is to be used in less than 3 years, stick it on deposit. The rate will be awful but your timeframe is too short to take any risk. If your time frame is longer than that it would be worth getting some financial advice from a professional.
Getting yourself a good financial planner after a life event like getting married should be a priority. Research from Canada shows that people with a financial planner have 2.5 times the net worth of people who don’t when they reach retirement. Start now.
As a financial planner here is one nugget I give people all the time that surprises them and shows the value an advisor can add. If children do come along you have three choices when it comes to the children’s allowance.
1. You can spend the €135 per month
2. You can invest the €135 in a 1% deposit account and add €35 per month (total €169) to it and put your child through college.
3. You can spend about €10 per month of it and invest €126 per month into a well-constructed, well diversified portfolio and get your child through college. (assumes 4% net)
But what is a well-constructed, well diversified portfolio? Go ask your advisor.