Money can sometimes be a hard topic to talk about. No matter how close you are with the person you’re talking to, your finances could be deeply personal, and may not be something you openly share with anyone.
In fact, a survey from the Money and Pensions Service in 2020 found that 29 million adults in the UK don’t feel comfortable opening up about their financial situation.
Despite this, it can sometimes be crucial to talk about money with those closest to you, especially if you live with them. Read on to find out why you should brush taboos aside and always discuss your financial situation with your partner.
Try to raise finances with your partner early
According to an American study reported by CNN, frequently talking to your spouse or partner about your finances can greatly increase relationship satisfaction.
Being on the same page when it comes to money can help set expectations, improve your understanding of each other, and increase your financial confidence.
Honesty surrounding your finances is also key. No one likes to deal with financial shocks, especially if they originate from the one you love most.
In fact, the Mirror reported in 2019 that 23% of people in a relationship admit to lying to their partner about money, with debts as the biggest reason provided.
Planning together is easier if you’re both on the same page
Understanding where you and your partner stand in terms of finances can help you work together to create realistic financial goals. Having financial goals make it much easier to formulate a plan of how you’re going to get there.
For example, you may be looking to save enough for a deposit on a house, which is the one of the first and hardest financial milestones to achieve. Or, perhaps you want to have a specific amount saved for your child to help them when they leave home?
Creating these goals as a couple can help you budget, since you’ll need to discuss what’s coming in and out to reach your target. Budgeting is one of the most effective ways to save money together.
A good place to start is by working out how much you spend on different areas of your life, like essentials, and non-essentials. This can help you cut down on unnecessary monthly payments and help you to discover ways of boosting your savings.
Plus, if you already invest or are considering investing, budgeting can also help you work out your risk tolerance. Knowing that you have the ability to commit to a higher-risk strategy could help your financial situation in the long run.
Planning together can help you to reduce your tax bill
By planning as a couple, you can more easily navigate Income Tax and Capital Gains Tax (CGT). Tax allowances are typically calculated individually but planning as a couple means you get double the benefits.
Take, for example, a Stocks and Shares ISA. This can be a tax-efficient method of investing because any returns on your contributions are free of both Income Tax and CGT. In the 2021/22 tax year, you may contribute up to £20,000 into your ISAs each year.
When planning your finances together, you will each have separate ISA allowances, effectively giving you £40,000 to contribute into your ISAs together.
The same method can be applied elsewhere too, such as Dividend Tax. In the 2021/22 tax year, you can earn a maximum of £2,000 in dividends before any tax is paid. By transferring dividend-paying assets between yourselves, you can essentially double your allowance to £4,000.
If you’re married, you may also be able to benefit from the Marriage Allowance, which MoneySavingExpert estimate 2.4 million qualifying couples aren’t currently claiming. This allows you to transfer your £1,260 of your unused Personal Allowance to your spouse to reduce their tax bill.
To qualify for this, however, one of you must be a non-taxpayer and the other must be a basic-rate taxpayer.
Estate planning as a couple could save your family thousands
Figuring out what will happen to your wealth once you pass isn’t easy, but it could be vital for your family’s wellbeing. Understanding the complex systems surrounding inheritance can be key when navigating Inheritance Tax (IHT) as a couple.
For instance, your estate must be worth at least £325,000 before you incur IHT charges. This is known as the “nil-rate band”. In the 2021/22 tax year, IHT stands at 40%, so it’s important to try and mitigate it as much as possible.
If you leave your property to a child or grandchild, you could benefit from the residence nil-rate band. This adds an additional £175,000 onto your basic IHT threshold, allowing your estate to be worth £500,000 before IHT applies.
If one partner happens to pass away, the other is often able to add their unused allowance on to their own. In most cases, anything you lave to your partner when you pass is tax-free.
This gives you a combined IHT-free estate of £650,000, or £1 million if you use the residence nil-rate band.
Get in touch
If you’re not sure how to plan effectively as a couple and make the most out of your combined finances, consider speaking to a financial adviser. Email firstname.lastname@example.org or call us at 0207 808 4120 to find out more.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.