While it may not be the most romantic topic of conversation on Valentine’s Day, you might find talking through your finances as a couple beneficial this 14 February and beyond.
Unfortunately, in many households, personal finances are seen as a private matter. Indeed, “money” is often a taboo subject.
For example, when it comes to planning for retirement, recent research by Standard Life has revealed that half of over-55s in the UK never talk to their loved ones about their goals or their financial strategy for achieving them.
Yet, planning your finances as a couple rather than individually could have several important benefits. Here are four to consider alongside your partner or spouse.
1. Transferring assets to your partner could help you mitigate your Capital Gains Tax bill
You usually pay Capital gains Tax (CGT) on any profits from selling or “disposing of” certain assets, such as a property that isn’t your main home and non-ISA investments.
Happily, you and your partner each have a CGT Annual Exempt Amount every tax year. This is the maximum profit or “gain” you could make before having to pay CGT.
The government has gradually reduced this allowance in recent years, from £12,300 in the 2022/23 tax year, to £6,000 in 2023/24, and again to £3,000 for 2024/25.
Fortunately, the chancellor did not further reduce this amount – as it was widely speculated that she might – in her Autumn Budget.
However, she did increase the rate of CGT payable on any profits that exceed this allowance, from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for higher- and additional-rate taxpayers. This means that non-property gains are now subject to the rates previously only applied to property.
So, if you’re planning to sell some of your assets this year, it might benefit you to plan this with your partner.
Together, you could realise up to £6,000 in gains as a couple before you face a CGT bill. As such, if your partner is unlikely to use their full CGT Annual Exempt Amount, you could transfer assets to them to make the most of your combined CGT-free allowances.
2. Pooling your financial knowledge and skills could help you make important decisions
Research published by FTAdviser has found that nearly 24 million UK adults have poor financial literacy.
What’s more, IFA Magazine has reported that there may be generational and gender differences in financial confidence and understanding.
By working together as a couple, you could pool your collective financial knowledge, skills and confidence to help you make important decisions. As the old saying goes, “two heads are better than one”.
Additionally, planning your finances as couple means that you’ll both understand your situation, needs, and goals. As such, you’ll be pulling in the same direction and share accountability over key financial decisions.
3. Contributing to your partner’s pension could boost your shared tax-efficient savings
You and your partner could receive generous tax relief on your pension contributions up to your Annual Allowance. This is the maximum amount you can contribute to your pension in a single tax year without facing an additional tax charge.
For most people, the Annual Allowance is £60,000 as of 2024/25. Your Annual Allowance may be lower if your income exceeds certain thresholds, or you have already flexibly accessed your pension.
If you would like to pay more into your pension than your Annual Allowance, you might want to consider topping up your partner’s pension if they under-contribute. This could be a tax-efficient way of boosting your shared savings.
It’s important to note, that tax relief is calculated based on the named pension holder’s Income Tax band, regardless of who makes the contributions.
Basic-rate taxpayers receive 20% tax relief on their pension contributions, whereas higher- and additional-rate taxpayers can claim an extra 20% and 25% respectively via their self-assessment tax return – which means they could receive up to 40% and 45% relief in total.
So, if one of you is in a higher Income Tax band than the other, it might be worth contributing more to this person’s pension, within the Annual Allowance.
4. You could reduce the Inheritance Tax liability on your estate
If the value of your estate exceeds the nil-rate band, your beneficiaries may have to pay Inheritance Tax (IHT) on any assets you pass on when you die.
Indeed, the number of households paying IHT has risen in recent years. According to FTAdviser, HMRC raised £5.7 billion in IHT receipts between April and November 2024, an increase of 0.6 billion compared to the same period last year.
This increase is largely due to the freeze on IHT thresholds.
The nil-rate band has been £325,000 since 2009. Additionally, the residential nil-rate band – which might allow you to extend your nil-rate band by up to £175,000 if you pass on your main residence to direct descendants – has been frozen at £175,000 since 2021.
In the Autumn Budget for 2024, the government extended this freeze to 2030. As a result, more families could potentially face an IHT bill if asset prices and inflation rise.
However, if you’re married or in a civil partnership, you could combine your individual nil-rate bands and residential bands, allowing you to pass on up to £1 million as a couple, without your beneficiaries incurring IHT.
Furthermore, married couples and civil partners can usually leave their estate to each other without triggering an IHT bill.
So, joint financial planning could help you pass on more of your wealth to your loved ones.
Get in touch
If you’d like help planning your finances as a couple, we’d love to hear from you.
Please get in touch by emailing info@lloydosullivan.co.uk or call 020 8941 9779 to see how we can assist you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
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 or tax planning.
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 performance.
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.
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