Whether you’ve been together for many years or are just setting off on a life journey with a new partner, a joint financial plan should help you build a more secure future than acting independently.
It can also be very rewarding, both in terms of the shared sense of creating a life together, and for the tangible financial benefits of planning as a couple.
Read about five top reasons why it’s good to talk about money with your partner, and plan your financial future together.
1. Talking about money can strengthen your relationship
There’s no such thing as a “typical” relationship. We all have different attitudes to managing our money and planning our future, so there’s no guarantee that you and your long-term partner will think the same way about money or how to manage it.
You may want to split everything equally, with separate bank accounts and responsibility for half the household outgoings.
Alternatively, you may recognise any big discrepancy in income and allocate overall financial responsibility between you based on a proportional split.
You may even feel more comfortable sharing absolutely everything, on the “what’s mine is yours” principle.
The key point is to ensure that you’re consistently talking about your financial situation, so that you make any important decisions jointly.
A survey carried out by Artemis Strategy Group in 2020 revealed that more than 70% of people thought they had a different attitude to managing their money than their partner.
Given that figure, the importance of planning together becomes clear. If you’re talking about money issues together, and work through the solutions to problems jointly, your relationship should grow stronger.
2. Joint planning encourages honesty in the relationship
It’s always likely that one of you will take the lead in the day-to-day organisation of your finances. You may simply be better organised than your partner, or you may work in a financially responsible role that means you have a better grasp of monetary matters.
Either way, it’s crucial to appreciate that you have a joint plan so you both need to be happy with your aims and objectives.
Open financial conversations with your partner can not only help your finances but strengthen your relationship, too.
Being honest about your financial situation can help build trust and will also prevent surprises and awkward conversations, such as if a previous financial problem has been kept quiet.
3. Some tax advantages can help you build your wealth together
There are several tax benefits available that, when doubled, can help you to efficiently grow your wealth as a couple.
Each individual over the age of 18 who is a UK resident can contribute up to £20,000 into an ISA in the 2022/23 tax year, regardless of income.
So, you can save up to £40,000 into ISAs between you each year and pay no Income Tax or Capital Gains Tax (CGT) on your interest or investment returns.
Furthermore, if you’re under 40 you can both pay up to £4,000 of your £20,000 ISA allowance into a Lifetime ISA to help you save towards purchasing your first home together. On top of that, both of you will benefit from the government bonus of 25% on your contributions.
Capital Gains Tax annual exempt amount
Beyond ISA investments, you both have an annual CGT exempt amount of £12,300 in the 2022/23 tax year.
This means that you can both take profits from non-ISA assets, such as stocks and shares, of up to £12,300 in a tax year before CGT becomes due.
So, with careful distribution of your investment assets, you can accrue £24,600 in the 2022/23 tax year before you have to pay any CGT. Note that this exempt amount will reduce to £6,000 for each individual in the 2023/24 tax year.
4. Joint planning can boost your pension savings
As well as savings and investments, careful financial planning between you can help you grow your pension savings tax-efficiently.
You both have a pension Annual Allowance of £40,000 gross or 100% of your earnings, whichever is lower. This is the maximum amount you can contribute to a pension each year that will qualify for tax relief.
You will both benefit from basic-rate relief, regardless of how much you earn. This will be added automatically to your contributions.
If you’re a higher- or additional-rate taxpayer, you can then claim higher rates of tax relief through your self-assessment tax return.
As a result, it can make financial sense to maximise contributions for the partner who is eligible for the highest rate of tax relief.
5. It can help you create a highly tax-efficient income stream
As well as being able to utilise certain tax advantages to help you build your wealth, planning together also helps you draw your income in retirement tax-efficiently.
You both have a Personal Allowance of £12,570 in the 2022/23 tax year, on which – subject to your circumstances – you don’t pay any Income Tax.
This means that, between you, you can take a joint tax-free income of more than £25,000.
You then start paying higher-rate Income Tax when you earn more than £50,270.
So, if you wanted to generate a joint income of £70,000 a year, it could pay for you to draw an income of £35,000 each. This means that you’re both only paying tax at 20% on the amount above your respective Personal Allowances, even though the total amount of income is well above the 40% tax threshold.
By planning your income as a couple rather than individually, you can effectively put together a strategy that could provide an annual income of £100,000 between you and only pay a top rate of 20% in tax.
Finally, if one of you earns less than the Personal Allowance amount, you can transfer £1,260 of your Personal Allowance to your partner to help them reduce the amount of tax they pay.
Get in touch
At bdhSterling, we have a wealth of experience in helping clients plan their financial futures as a couple.
Get in touch to find out how we can help you.
The value of your investments 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.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC legislation, which is subject to change.