Everything you need to know about financial planning as a couple

When you’ve found someone whom you love, and have settled down into a serious relationship, it’s time to start making plans for your future.

While you might be initially hesitant to discuss finances with your partner, especially if you’re used to managing your wealth individually, working together can have significant benefits. From growing your wealth with investments to managing your allowances, here is everything you need to know about financial planning as a couple.

Budgeting together can help you to save money

One of the easiest ways that you can get started with planning your finances as a couple is to decide what your long-term goals should be, such as buying your own home. Having clear goals in mind can help you by giving you something to work towards and can help to determine the right financial strategy.

For example, if you are investing your wealth, your financial goal can help to determine your tolerance to risk. If it is short-term then it may be better to choose low-risk investments, while if it is a long-term goal, such as a comfortable retirement, you may be able to afford to take greater risks.

Once you know what your goals are, you and your partner can then put together a budget so that you can start saving towards them. A good way to start is by working out your joint monthly income and then assessing how much you spend on things like food, utilities, and non-essentials.

Once you know how much your incomings and outgoings are, you can assess how much you want to save every month and cut your expenses accordingly.

Budgeting can sometimes seem like a daunting task, especially if you don’t have much experience doing so. If you aren’t sure what the best way to budget is, read our previous article on the topic to find the right strategy for you.

You can use each other’s allowances to reduce your tax bill

One of the benefits of planning your finances as a couple is that it allows you to take advantage of your tax allowances more effectively. When you’re saving and investing your wealth as a couple, your allowances are essentially doubled.

For example, if you want to grow your wealth, then using an Individual Savings Account (ISA) can be a tax-efficient way to do so. This is because any returns on your contributions are free from Income Tax and Capital Gains Tax (CGT).

Each tax year, you have a limit of how much you can contribute into your ISA, which is called your “ISA allowance”. For the 2021/22 tax year, this is £20,000.

By investing as a couple and transferring assets when one partner is nearing their limit, you could double your allowance to £40,000 and shave a considerable chunk off your tax bill.

Similarly, there are other allowances like this that you can take advantage of as a couple.

For example, you have an annual allowance for how much income you can make from dividends in a given tax year. In the 21/22 tax year this is £2,000 but by transferring assets between yourselves, you can effectively double this to £4,000.

Furthermore, when you dispose of assets you typically have to pay tax on anything over a threshold called your “CGT allowance”. In the 21/22 tax year this limit is £12,300, but as a couple you can double this amount.

You can also benefit from Marriage Allowance, which allows you to transfer £1,260 of your unused Personal Allowance to your spouse in any financial year and can potentially save up to £252 in tax.

Ensuring you both have up-to-date wills can help you in case the worst should happen

While nobody likes to think about the prospect of death, the coronavirus pandemic has shown us the importance of preparing for the worst.

Making sure that you and your partner have up-to-date wills is an important part of financial planning as a couple. If you pass away without a will, you have no guarantee that your estate will be divided according to your wishes.

If you aren’t married then it’s particularly important as, if one partner dies, then the other will not automatically inherit their estate, even if you have lived together for decades.

Having a will in place can give you peace of mind to know that even if the worst should happen, your partner won’t have to go through a lengthy legal battle for your inheritance.

Get in touch

If you and your partner want to plan your finances in the most effective way, we can help. Email enquiries@prosserknowles.co.uk or click here to request a call back from one of our advisers.