There’s an old saying that “if you choose money over love, you will always be poor.”
However, if you’re in a long-term relationship, approaching your finances as a couple could well bring you both happiness and prosperity.
So, in the month of Valentine’s Day, here are five benefits of financial planning as a couple.
1. It’s good for your relationship
An important reason why planning as a couple is valuable is because the openness and honesty that comes with these conversations can be good for your relationship.
According to the Money and Pensions Service, 2 in 5 people keep secrets about credit cards, loans, and savings from their loved ones, most often their partners.
Additionally, 38% of people don’t talk about money worries, with some of the reasons they give including embarrassment or fear of being judged.
If you have a spouse or partner, it’s important to be open about your respective financial histories. As well as strengthening your relationship, it can help you to avoid difficult conversations, for example if previous debt arises when you come to get a mortgage.
2. You could pay less tax
While it’s unlikely you asked your spouse to marry you for tax reasons, there are some financial benefits of being married or in a civil partnership.
Marriage Allowance
The Marriage Allowance lets a spouse or civil partner give some of their unused Personal Allowance to their partner.
The Personal Allowance is the amount of income you can receive before Income Tax is due. For the 2021/22 tax year, it is £12,570 for most people.
If you or your partner has an income below this threshold, the person on the lower income can pass up to £1,260 of their Personal Allowance to the other, effectively increasing their Personal Allowance to £13,830. It’s a step that saves up to £252 in Income Tax.
To be eligible, you must be married or in a civil partnership and the partner with the higher income must pay Income Tax at the basic rate in England and Wales (or the starter, Scottish basic or intermediate rate of Income Tax in Scotland).
ISA allowance
Another benefit of planning as a couple is that you can take advantage of your tax allowances more effectively. When you’re saving and investing your wealth as a couple, you essentially double many of your tax allowances and exemptions.
For instance, if you want to grow your wealth, using an Individual Savings Account (ISA) can be a tax-efficient way to do so. This is because any returns are free from Income Tax and Capital Gains Tax (CGT).
Each tax year, ISAs have a subscription limit. In 2021/22 and 2022/23 this is £20,000 for each adult. By investing as a couple and transferring assets when one partner is nearing their ISA subscription limit, you could double your allowance to £40,000 and allow more of your capital to grow tax-efficiently.
Dividend and Capital Gains Tax (CGT) Allowance
There are various other allowances that you can take advantage of as a couple.
For example, every individual can receive up to £2,000 in dividends in the 2021/22 tax year before tax is payable. So, by transferring assets between yourselves, you could effectively take up to £4,000 in dividends between you, tax-free.
Furthermore, when you dispose of assets you will typically pay CGT on profits you make above your annual CGT exempt amount. In the 2021/22 tax year this limit is £12,300 but, if you jointly hold assets, you could make gains of double this amount before tax is due.
3. You can align your financial plan with your goals
One of the reasons we encourage all couples to plan together is that you can align your individual spending habits and wider financial plans with your joint future goals.
- What is it that you want for the future?
- Do you plan to retire at the same time?
- Do you have the same goals and ambitions for later life?
Your financial plan needs to fit with your wider life goals, whatever these may be. That’s why planning as a couple is so important – it ensures that you, your partner, and your money are all pulling in the same direction, however you choose to manage it.
4. It can help you to budget
Making a budget as a couple is important if you want to keep your family finances – and your relationship – in good working order.
Start by working out what your financial goals, strengths and weaknesses are and how you can financially complement each other. Then, you need to work out what you want to achieve together as a couple, and your financial goals. These could be:
- Buying a house
- Saving for your children’s future
- A joint retirement plan.
Then, work out a budget – and stick to it. Include some luxuries and spending on things you enjoy, as this will make your budget easier to stick to. This should include thinking about the future and saving and investing as necessary with your future goals in mind.
We can help you to formalise your goals and create a plan that works for you both. Using sophisticated cashflow modelling, we can also work out what you need to do to reach your joint goals.
5. It can help if the worst should happen
While nobody likes to think about the “’til death do us part” section of their vows, prudent planning involves preparing for the worst.
Ensuring that you and your spouse or partner have up-to-date wills is an important part of financial planning as a couple. That’s because if you pass away without a will, you have no guarantee that your estate will be divided according to your wishes.
For example, if you aren’t married when you die, your partner will not automatically inherit your estate, even if you have lived together for years.
Having a will in place can give you peace of mind to know that, even if the worst should happen, your partner won’t have to go through a lengthy legal battle for their inheritance.
Get in touch
Planning as a couple can help you to achieve your goals and live the life you want. To find out how we can work with you both, please get in touch. Email hello@sovereign-ifa.co.uk or call 01454 416 653.
