The most romantic day of the year arrives next month but this year Valentine’s Day could be on a shoestring for many couples.
The Office for Budget Responsibility recently downgraded its economic forecasts for 2024, predicting higher-for-longer inflation and borrowing rates.
Money is already one of the main causes of arguments in UK relationships and the cost of living crisis has done nothing to resolve this issue. There are, though, numerous benefits to planning your finances as a couple, both financial and non-financial.
Keep reading to find out how and why you and your partner should open up about money and your long-term goals this 14 February.
Money talk can often be taboo but open communication can strengthen your relationship
Our attitudes to money are often formed when we’re young and for this reason, they’re often deeply ingrained. The way our parents felt about money or the amount our families had growing up can leave a strong impression and deep-rooted standpoints.
Later in life, there’s no guarantee that your partner will have had similar childhood experiences and they could hold opposite views on money.
It’s only understandable that this could be a relationship sticking point and lead to conflict. As with all areas of contention, communication is key.
Talk about money to find shared goals
Money talk might not be romantic but try to set time aside each month where you discuss your joint finances. Treat it like a regular date night and diarise it to enjoy you stick to it.
Use the time to discuss your money views and to set joint financial goals. You’ll then have a shared future to work towards and can support each other if you need to make compromises.
Remember that it’s okay to retain individual goals too. Just be sure you’re open about discussing them, and your progress towards them.
You might find that removing the taboo of talking about money strengthens your relationship.
Work together and share responsibility for decision-making
There is often one party in a relationship who takes control of day-to-day financial matters but working together toward a shared goal means sharing responsibility too.
If one of you has more experience or knowledge of financial matters, it makes sense for that person to take the lead but ensure the other party remains engaged.
When both parties are involved in decision-making you’ll likely find that two heads are better than one. This can lead to new ways of looking at things and different approaches to a shared goal.
It also ensures you’re both fully invested in the process.
Open communication should help to avoid arguments and financial infidelity
An Aviva report published last year found that 38% of UK adults currently in a relationship admitted to some form of financial infidelity.
This could have been secret debt hidden from a partner, or money stashed away in a private account.
While it’s perfectly acceptable to manage elements of your own finances, being open about your situation and communicating honestly will always be the best option in a relationship. Money is imbedded in our everyday lives so secrets in this area can grow into wider distrust or cause problems down the line.
Talking over your worries about debt or your plans for your savings will prevent money from becoming a wedge driven between you and your partner.
There are financial advantages including the Marriage Allowance and other tax efficiencies
Back in March 2021, then-chancellor Rishi Sunak used his Spring Budget to announce a raft of tax allowance freezes. Originally set in place for five years, some of these have since been extended to 2028.
A recent Institute for Fiscal Studies report confirms that the freezes represent a £52 billion a year increase for UK taxpayers.
The measures affect Income Tax, Capital Gains Tax (CGT) and Inheritance Tax and mean that tax-efficient saving and investing are more important than ever. And planning as a couple can help.
The Marriage Allowance
If you or your partner have income below the Personal Allowance (currently frozen at £12,570), this partner can effectively transfer £1,260 of their allowance to their spouse or civil partner.
This is known as the “Marriage Allowance” and it could reduce the higher-earning partner’s tax bill by as much as £252 for a single tax year.
Claims can be backdated if you haven’t used the allowance before.
Managing your CGT Annual Exempt Amount
You might also think about how you dispose of assets, jointly managing your CGT annual exempt amount. This allowance was halved in 2023/24 from £12,300 to just £6,000. It is set to drop again in April 2024, to just £3,000.
A transfer of assets between you and your partner before a disposal could help. Not only will you be able to fully utilise each partner’s Annual Exempt Amount, but the rate of CGT is based on the marginal rate of the disposing partner so bear this in mind too.
Think carefully about how you manage pension contributions
The Annual Allowance increased at the start of 2023/24, from £40,000 to £60,000. This is important because it’s the amount up to which you can contribute to a pension while still receiving tax relief.
While tax relief is applied automatically at 20%, extra relief is available for higher- and additional-rate taxpayers so using joint funds to maximise contributions for the higher earner will increase the tax relief you receive.
Some of these options can be complicated and they won’t be right for everyone so be sure to speak to us before you decide if these plans are right for you.
Get in touch
If you have any questions about how to reorganise your financial plans alongside your partners, speak to us now. Please contact us on info@janesmithfinancial.com or call 01234 713131.
Please note
The value of your investment 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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
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