09 February 2022
According to Finder, Brits are projected to spend £1.37bn on Valentine’s Day in 2022, with more than three quarters of the nation set to celebrate the day. It seems that love isn’t cheap, so there is no better time to discuss how to boost your combined finances if you’re a couple.
Financial circumstances can often be a difficult subject, but it is vital for those planning a future together. The earlier in your relationship you have such conversations the better, but even if your first date now seems a distant memory, it is better late than never.
Rosie Hooper, chartered financial planner expert at Quilter says:
“While it is likely considered a less than romantic conversation to broach, having an open discussion about your finances as a couple can be hugely beneficial.
“Many people are either not aware or fail to make use of the generous benefits available to couples, which could be costly in the long run.
“To help create a better financial future for you and your partner, you should be aware of the big financial faux pas that so many couples make, and do your best to avoid them:
1. Not talking about your finances
“Being able to talk openly to one another about your finances is very important. At first it may seem an uncomfortable topic to bring up, but it is a conversation that ultimately could prevent more difficult discussions later down the line.
“As a financial planner, I often come across couples where only one person makes the financial decisions. We don't talk about money enough and both partners should understand the decisions being made about their combined wealth.
“It can sometimes be hard to convince a client to invite their significant other along to a financial planning meeting, particularly if they have always been the sole decision maker, but it's important. If one of them were to die, it could leave the other partner vulnerable if they have no understanding of the financial side of the relationship. Furthermore, they could be vulnerable after a divorce if they don’t have an understanding of where assets are held and how they’re set up.
“By discussing your financial circumstances, you will be able to more effectively budget and plan as a couple, which will help you reach your financial goals. It is a good idea to speak with a financial planner to help explore the options available and make the best decisions for you.
2. Only linking your current accounts
“A key benefit of discussing your finances is being able to make use of linked accounts and investments. Often the conversation about linking finances ends at the convenience of the shared current account and a jointly held mortgage. However, spousal linking of investment accounts in the UK is increasingly common as it can help to lower the overall charges paid by each partner.
“Additionally, you may also wish to explore other options available that could help you save money such as joint life cover, car insurance, or other similar products.
3. Co-habiting
“For better or for worse, much of government policy around the tax benefits of your personal finances still favour those who are married or in a civil partnership. This tax year, you can pass on up to £175,000 of your property tax-free, which is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner. That’s layered on top of your inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1m inheritance free as a couple. However, note this is ‘tapered’ at a rate of £1 for every £2 of excess if the overall net value of the estate on death exceeds £2 million.
“This also only works for those with direct descendants to inherit the family home and is capped at the value of the property being inherited (less any mortgage outstanding), while the UK’s six million cohabitees are less fortunate and cannot claim the combined allowances.
“Marriage isn’t for everyone, but the fact is one of the shrewdest moves you can make this Valentine’s Day is to pop the question.
4. Holding assets in the wrong name
“How money or an asset is held, whose name is on the ownership and who will benefit from it often underpins good financial planning, but these factors are rarely considered by married couples. Quilter’s research[1] shows that many couples could achieve 40% more return on interest payments in savings accounts if they were placed in the name of a partner on a lower tax band.
“By ensuring assets are held in the right name and product, it is possible to reduce the amount paid to HMRC. For example, exploring whether to top-up a partner’s pension rather than your own can ensure you are receiving the maximum tax relief available.
5. Protecting one life only
“An all-too common mistake is the failure to buy life cover for one partner, usually a new mother, when they take a career break. While the working partner will often have life cover and death-in-service benefit as a part of their employment benefits, they overlook what would happen if the non-working partner were to pass away. For example, how would you pay for childcare in order to continue working?
“It’s important to ensure both partners are adequately covered in case the worst happens and speaking to financial adviser is a good place to start. Not only will this give you the peace of mind that those who depend on you will be taken care of if you were to pass away, but it would also make a difficult situation far easier for your loved ones if the worst were to happen.”
