Ardent Team

7 January 2021

5 top tips for financial planning as a couple

It might not make for a romantic date, but planning your finances as a couple could lead to a happier and more financially secure relationship.

If you’re used to saving and investing individually, you might be reluctant to open up about your finances. However, having an honest discussion will go a long way to ensuring your dreams for the future become reality. You could even save money in the process.

From maximising your tax allowances to making a will, here are five top tips for financial planning as a couple.

1. Plan and budget together

The first step in financial planning as a couple is to establish your financial goals. Some common goals include buying a house, paying for children’s university fees, saving for a comfortable retirement, and leaving a legacy for loved ones.

Your goals will form the bedrock of your financial plan. They’ll give you something concrete to work towards and help you determine which assets to invest in. For goals that are less than five years away, cash is usually the most suitable asset to hold. For longer-term goals, you might want exposure to the stock market.

Once you’ve set your goals, you can create a spending and savings budget. Start by calculating your joint monthly income. Then add up how much you spend on food, bills and non-essential expenses. This will help you work out how much of your income to divert to savings.

Budgeting can be a daunting exercise for newer couples. But your partner will appreciate your active interest in your future together.

2. Use each other’s tax allowances

There are lots of tax allowances that enable you to reduce how much of your hard-earned wealth goes to the taxman. When you’re saving and investing as a couple, these allowances are effectively doubled.

In the 2020/21 tax year, everyone has an ISA allowance of £20,000. For couples, this doubles to £40,000.

An ISA is a tax-efficient way of saving and investing. Money inside an ISA is shielded from Income Tax, Capital Gains Tax and Dividend Tax. By investing as a couple, you could shelter £40,000 of your wealth from these taxes.

3. Structure investments to minimise tax

There are many other ways to reduce your tax bill, especially if you’re married.

Usually, you’ll owe Capital Gains Tax (CGT) when you give away an asset, but gifts between spouses are exempt. This is useful because it enables you to transfer assets to minimise how much tax you pay. For example, you could transfer shares to your spouse to use their ISA allowance and shield more of your investments from tax.

For non-ISA investments, there are other allowances to take advantage of:

  • The Dividend Allowance – you can earn up to £2,000 in dividends without paying Dividend Tax. For couples, this doubles to £4,000.
  • The CGT allowance – when you sell or give away investments, you can make up to £12,300 of profits (‘gains’) without paying CGT. For couples, this doubles to £24,600.

Even if you’ve used up all your allowances, transferring assets between yourselves could slash your tax bill.

Let’s imagine you’re a higher-rate taxpayer and your spouse is a basic-rate taxpayer. If you sold an asset and made a profit above your CGT allowance, you’d pay tax at 28%. If you received dividends above £2,000, you’d be taxed at 32.5%.

As a basic-rate taxpayer, your spouse would pay CGT of 10% and Dividend Tax of 7.5%. So, by transferring assets to your spouse, you could significantly reduce the rate at which you pay tax.

Basic-rate taxpayers can also earn up to £1,000 in tax-free savings interest. This falls to £500 for higher-rate taxpayers and £0 for additional-rate taxpayers.

4. Boost your money in retirement

By planning your finances as a couple, you might be able to increase how much money you have in retirement.

Every time you pay into a pension, the government adds tax relief of 20%. This means a £1,000 pension contribution only costs you £800. Higher-rate and additional-rate taxpayers can claim a further 20% and 25%, respectively.

You might be able to divert pension saving to the higher earner to take advantage of their higher rate of tax relief. However, you must check whether this would affect their entitlement to employer contributions or take them above their Annual Allowance.

The maximum amount you can save into a pension each year and still get tax relief is 100% of your earnings or £40,000, whichever is lower. If your adjusted income is above £240,000, your Annual Allowance will start to taper, down to a minimum of £4,000. If you’re affected by the taper, you might wish to direct some of your contributions to your partner’s pension instead.

Retirement saving as a couple could prevent you from breaching your Lifetime Allowance. If your pension pots are worth more than £1,073,100, you’ll usually have to pay tax.

You can also structure your pensions to pay less tax in retirement. Once you reach age 55 (57 from April 2028) you can withdraw up to 25% of your pension tax-free and the rest is taxed at your marginal Income Tax rate. So, whereas your pension withdrawals might be taxed at 40%, your partner’s might be taxed at 20%.

Working out the most efficient way to save for retirement is extremely complex, so make sure you seek financial advice.

5. Write a will

Writing a will is an essential part of financial planning as couple, and it’s especially important if you’re unmarried. If you die without a will, the courts will decide who should inherit your money, property and other assets. This won’t necessarily be in line with your wishes.

Unmarried partners have no legal entitlement to their partner’s money or property if they die without a will. This is even the case if they’ve lived together for decades and have children together.

Even if you’re married, making a will is crucial. Children from a previous marriage could end up with nothing if you haven’t legally provided for them in your will.

Writing a will is a simple exercise that could save your loved ones a lot of heartache and financial hardship.

Get in touch

If you’d like advice or information on planning your finances as a couple, we can help. Please email or call 01904 655330.

Please note

The value of your 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.

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.

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.

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