Metis AM
How often does money cause arguments or tension in your relationship?
Research from Aviva has found that couples are arguing more about money now than before the start of the cost of living crisis. It also found 38% of people had savings or debts that they hadn’t told their partner about.
Even though it can be challenging, especially if you have a different approach to managing your money than your partner, planning finances as a couple can be very beneficial for your relationship and your future financial goals.
Read on to find out how this could strengthen your relationship and put you both in a more stable financial position.
1. It could strengthen your relationship
According to a report by the Guardian, money worries are one of the most common reasons for relationship difficulties. So, even though the conversation might feel uncomfortable at first, tackling it now could pave the way to a much stronger and more peaceful relationship with your partner.
One of the reasons for tension about money is if you and your partner have different attitudes towards spending and saving. If you don’t talk about this, it can lead to resentment building up over time.
But by being open and honest about your opinions, goals, and worries, you can hopefully find a way forward that feels comfortable for you both.
2. You are more likely to be financially secure
As well as strengthening your relationship, talking about and planning your finances as a couple can mean that you are more likely to achieve the goals you’ve set yourself.
Using the tax benefits that are available to couples, you can ensure that your savings and investments are as tax-efficient as possible, meaning that you could hit your target sooner than you might have done if you were both saving separately for different goals.
You might still have individual goals for your money, but some of your goals might be shared with your partner, such as when you’d like to be able to retire. Supporting each other can be a big motivator helping you to achieve what you want as a couple and as individuals.
An additional benefit for couples who regularly talk about money together is that they tend to be in a more stable financial position than those who don’t.
A report from the Guardian has suggested that two-thirds of couples who regularly talk about money have enough left at the end of the month, versus just half of people in the general population. They’re also more likely to have enough emergency savings.
3. You can make the most of the tax benefits for couples
There are lots of tax benefits available to couples who are married or in a civil partnership.
Capital Gains Tax
Capital Gains Tax (CGT) is payable on the profits you make from selling assets such as second properties, non-ISA investments, and other assets, including expensive wine or antiques.
The CGT allowance for the tax year 2023/24 is £6,000 for individuals. By working together and combining your individual exemptions, you can make greater gains before you need to pay CGT.
It’s important to note that the allowance will be cut further in 2024/25 to £3,000 for individuals.
Pensions tax relief
When you plan your finances together, you can also be a bit strategic about making the most of tax relief offered on pension contributions.
The Annual Allowance for 2023/24 is £60,000 or 100% of earnings, so saving into a pension is a very tax-efficient way to save for retirement. You will automatically receive basic-rate tax relief on contributions, but you can claim more tax relief if you are a higher-rate or additional-rate taxpayer through your self-assessment tax return.
This means it could be beneficial to max out the tax-efficient pension contributions that you or your partner is eligible for if one of you sits in a higher tax bracket.
Marriage Allowance
If you’re married or in a civil partnership, and one of you earns below the Personal Allowance, you are permitted to transfer £1,260 of your allowance to your partner, provided they are a basic-rate taxpayer. This could reduce the amount of tax they have to pay by up to £252 in the tax year.
Be aware though that like many of the tax-saving opportunities mentioned here, this benefit is only available to married couples or civil partners, so if you are cohabiting but aren’t married, you aren’t eligible for this.
4. Create a tax-efficient retirement strategy
A joint income strategy in retirement can help you to pay less tax as a couple on retirement income, allowing you to take home more of your pension withdrawals.
You can both usually access 25% of your pension tax-free. After that, income from your pension is added to your other earnings and taxed at your marginal rate. You only pay higher-rate tax on income above £50,271, so once you’ve used the 25% tax-free lump sum, you could take £100,000 of income between you and your spouse/partner and only pay 20% Income Tax.
This shows how a little bit of forward planning and working together as a team can help you to create a retirement income that is tax-efficient and allows you to achieve everything you’d both like to do.
5. You could reduce the Inheritance Tax liability on your estate
Inheritance Tax (IHT) is usually payable on any part of your estate that exceeds the threshold of £325,000, or £500,000 if you are also leaving your home to children or grandchildren.
However, if you’re married or in a civil partnership, you can pass your entire estate to your partner when you die without IHT being payable on any of it. When they pass away, you can combine your IHT allowances, so that the tax is only payable on any part of the estate that exceeds the combined threshold.
This can help save your family from having to pay a large tax bill after you and your partner have passed away.
A planner can help you to talk about finances as a couple
Money isn’t the most romantic or even comfortable subject for many people. But keeping information about your savings, debts, or other financial matters from your partner can cause tension and worry.
A planner can help you to talk about these things in a positive way and help you to build a financial plan that works for you as a couple and as individuals.
If you’d like to find out more, we can help. Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
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.
