February is the month of romance. And while the big day has passed, long after the Valentine’s chocolates have been eaten, the cards recycled, and the flowers composted, your long-term financial plans will remain.
According to a February 2022 report in the Independent, money is the main cause of arguments within couples. When handled correctly, though, a joint financial plan can provide a shared goal, a combined sense of purpose, and a willingness to be open and honest about a subject that is often taboo.
Keep reading for some of the main reasons to plan your finances as a couple, from improving relationship harmony to some of the important financial benefits.
1. Communication ensures you have a full financial picture
Of those Brits who admit to arguing with their partner, 62% confirm that those disagreements are about money. But many of these issues could be resolved through communication.
Ideally, you would tackle the subject early in a relationship. You might have different views on your finances or different management styles – our relationship with money is often framed by childhood experiences – but open conversations can lead to common ground.
Whether you have debt tied up in high-interest loans or a burgeoning investment portfolio, honesty is key.
Once you have a full picture of your joint finances, you’ll be in a better position to make fully informed decisions that are right for you.
2. Maximise your joint retirement fund by making the most of pension tax relief
Tax relief is automatically applied to pension contributions at 20%, up to your Annual Allowance. For 2022/23, this stands at £40,000 (or 100% of your earnings, if lower).
This means that as a basic-rate taxpayer, topping up your pension by £100 only costs you £80. As a higher- or additional-rate taxpayer, you can claim further relief, up to 40% and 45% respectively. You’ll need to do this through your self-assessment tax return.
A £100 contribution for a higher-rate taxpayer costs £60, while an additional-rate taxpayer would pay just £55.
It might make financial sense to maximise pension contributions for the highest earner, up to their Annual Allowance.
3. ISAs are also a tax-efficient way to save and invest
Alongside pensions, ISAs are also an incredibly tax-efficient way to save. There are several types available and each year you can pay up to £20,000 (for the 2023/23 tax year) into the ISAs you hold. This amount is known as the “ISA Allowance”.
You don’t pay tax on the interest you earn in a Cash ISA, while any gains you make in a Stocks and Shares ISA are free of both Income Tax and Capital Gains Tax (CGT).
This means that you and your partner can effectively save £40,000 each year, benefiting from the incredible tax efficiency your ISAs offer.
4. There are financial benefits to being married
There are certain financial advantages to being married or civil partnered that don’t apply to cohabiting couples. The most obvious of these is the Marriage Allowance.
If your or your partner’s income falls below the Personal Allowance – currently £12,570 and frozen at this rate until 2028 – the Marriage Allowance could apply. It allows the lower-earning partner to transfer up to £1,260 of their Personal Allowance to their partner, reducing the latter’s tax bill by up to £252 a year.
It’s also worth noting that rules around Inheritance Tax and estate planning vary considerably between married and civil partnered, and cohabiting couples.
On death, the deceased assets will usually automatically pass to a spouse or civil partner tax-free, along with any unused IHT allowance. This effectively doubles the surviving partner’s nil-rate band to £650,000.
The wealth of the deceased would only pass to a non-married partner where this was expressly stated in the deceased’s will, and even then, tax would likely be payable at 40% on assets exceeding £325,000.
5. Both make a will and be sure you keep them up to date
A will is the best way to make sure your wishes are known on death and it is vital, whether you are married or civil partnered, cohabiting, or in a new relationship.
You can state where your assets should go when you die, giving you and your loved ones peace of mind.
Remember, though, that having a will in place isn’t enough. Life events can shift your priorities so be sure to check in with it regularly to ensure it still aligns with your wishes.
Get in touch
If you would like help managing your finances as a couple, or you have questions about any other aspect of your long-term financial plans, speak to us now. Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
The value of investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
