Despite falling inflation, the cost of living crisis remains a very real worry for many in the UK this year.
And while the financial plan you have in place with us means that you are likely to be on track for your dream retirement lifestyle, you might still be feeling the pinch.
A recent report from PensionsAge suggests that one way to combat rising costs and improve your retirement prospects is to plan your finances as a couple.
Keep reading for a look at some of the main ways in which joined-up planning could help you and your partner now.
Financial advantages
1. Maximise the pension tax relief you receive on contributions
You automatically receive basic rate tax relief on the pension contributions you make. This means that a £100 increase to your pension pot costs you just £80, with the additional £20 paid by the government.
If you pay Income Tax at a higher or additional rate, however, you can claim even more relief via your self-assessment tax return.
Tax relief is payable on all pension contributions up to the Annual Allowance. This increased in 2023/24 to £60,000 (up from £40,000 the previous tax year) so now is a great time to make full use of the new amount.
If you or your partner is in a higher tax bracket, consider maximising one party’s contributions at the expense of the other.
Note, though, that a higher earner could have a different Annual Allowance so be sure to speak to us before you make any changes to your pension contributions.
2. Lower your potential Income Tax bill using the Marriage Allowance
The Marriage Allowance applies if you or your partner has income below the Personal Allowance, while the other pays tax at the basic rate.
The Personal Allowance is currently frozen at £12,570 for the 2023/24 tax year.
The allowance means that the lower-earning partner can transfer £1,260 of their Personal Allowance to a husband, wife, or civil partner, thereby reducing their own tax bill by up to £252 a year.
You may also be able to backdate your claim, so check if you might be eligible now.
3. Make the most of the Capital Gains Tax exempt amount before it drops further
Capital Gains Tax (CGT) receipts are rising. MoneyAge reports that Brits paid £16.7 billion in CGT during the 2021/22 tax year, a rise of 15% compared to the previous tax year.
The number of individuals taxed hit 394,000, twice the number paying the tax a decade ago.
These figures are set to rise again thanks to a slashing of the CGT exempt amount. It has halved for the 2023/24 tax year, from £12,300 in 2022/23 to just £6,000. It is set to half again (to £3,000) in 2024/25.
CGT is usually payable at either 10% or 18% for basic-rate taxpayers. For higher- and additional-rate taxpayers the rate is either 20% or 28%, depending on the type of asset that has made a gain.
If you get close to the CGT exempt amount in a given tax year, you might consider transferring some of your assets to your partner. This uses a portion of their exempt amount and could also mean that there is a lower rate of tax to pay (if they are in a different Income Tax band).
Non-financial advantages
4. Spreading the burden reduces stress and promotes honest communication
Dealing with household financial matters can be stressful, especially without the help of professionals.
But organising your finances as a couple means sharing the load and also forces you to sit and talk openly about money matters.
Even if one of you has a better grasp on household finances, sharing and communicating is key. Back in February, Aviva looked at why money is the biggest cause of friction in relationships and found that a quarter of couples have weekly arguments about money.
Differences in spending habits, attitudes to money, and financial infidelity are all issues. A massive 38% of those surveyed admitted they were guilty of financial infidelity – keeping secrets about savings, spending habits, or debt.
5. Planning together allows you to align your goals
Not only will planning together help you to be open and honest with each other, but it also helps you to align your goals.
That doesn’t mean that your goals need to be the same, but they will need to complement each other.
By sitting down with a financial professional and understanding what your dream retirement looks like, you’ll be able to find the areas that overlap and those that don’t.
The plan that we help you to put in place will then balance your individual needs so that both parties are on the same page and working toward a goal they are happy with.
Get in touch
Contact us now to find out how our Chartered financial planners could help you and your partner organise your finances together.
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.
