Valentine’s Day is not just about flowers and chocolates; it’s an ideal time for couples to strengthen their bond, and one crucial aspect of this is organising finances together. However, this year Valentine’s Day could be on a shoestring for many couples as the Office for Budget Responsibility recently downgraded its economic forecasts for 2024, predicting higher-for-longer inflation and borrowing rates.
Financial disputes are already a leading cause of disagreements in relationships in the UK, and the cost of living crisis has done nothing to resolve this issue. Despite these difficulties, there are multiple advantages to coordinating your finances as a couple. Here’s a guide on how to organize your finances as a couple this Valentine’s Day.
1. Open communication
The foundation of any successful couple is open communication. Report by Aviva mentioned that 38% of UK adults in a relationship admit to having a secret account or ‘money stashed away’ that their partner doesn’t know about.
While it’s absolutely fine to handle aspects of your personal finances, maintaining openness and honest communication is the ideal approach in a relationship. Keeping your money secret can lead to broader distrust or cause other issues in the future.
Take time this Valentine’s Day to sit down and discuss your worries about debt or your plans for your savings to prevent money from becoming a wedge between you and your partner.
2. Set mutual goals
Money talk might not be romantic but try to set time aside each month where you share financial goals that reflect both your short-term and long-term aspirations. Treat it as a regular date night, schedule it in your calendar, and ensure you both commit to it.
Whether it’s saving for a dream vacation, buying a home, or planning for retirement, having common objectives creates a sense of unity and purpose in managing your finances.
Breaking the taboo of discussing money could enhance the strength of your relationship.
3. Team up and collectively take on decision-making responsibilities
While it’s common for one person in a relationship to handle day-to-day financial matters, working together towards a shared goal involves sharing the responsibility. If one partner has more experience or knowledge in financial matters, they can take the lead, but it’s crucial to keep the other engaged.
Involving both parties in decision-making often brings diverse perspectives to the table, fostering new ideas and alternative approaches toward a common goal. This inclusive approach ensures that both individuals are fully committed to the process.
Check your financial advantages as a couple in this Valentine’s Day
In March 2021, then-chancellor Rishi Sunak, during his Spring Budget, announced a series of tax allowance freezes initially set for five years, now extended to 2028. According to a recent Institute for Fiscal Studies report, these freezes have resulted in a £52 billion annual increase for UK taxpayers.
The impacts span Income Tax, Capital Gains Tax (CGT), and Inheritance Tax, emphasizing the increased significance of tax-efficient saving and investing. Planning as a couple can play a crucial role in maximizing these financial advantages.
The Marriage Allowance
The Marriage Allowance could allow your spouse or civil partner to transfer some of their unused Personal Allowance to you. The Personal Allowance is the amount you can earn before you could be liable for Income Tax. For the 2023/24 tax year, the Personal Allowance is £12,570, and it’s frozen at this level until April 2028.
If your partner isn’t using their full Personal Allowance, they may be able to transfer £1,260 to you. It could reduce your overall tax bill by up to £252 in 2023/24. To be eligible, you must pay Income Tax at the basic rate in England, Wales, or Northern Ireland. This usually means your total income is between £12,571 and £50,270.
If you’re based in Scotland, you must pay Income Tax at the starter, basic, or intermediate rate. Typically, this means your income will be between £12,571 and £43,662. You can backdate the Marriage Allowance for up to four years. You have until 5 April 2024 to use your entitlement from the 2019/20 tax year.
CGT Annual Exempt Amount
You may need to pay Capital Gains Tax (CGT) when you dispose of certain assets. CGT is due if the overall gains exceed your tax-free allowance, known as the “Annual Exempt Amount”. For 2023/24, it is £6,000, it is set to drop again in April 2024, to just £3,000.
Transferring assets between you and your partner prior to a disposal could prove beneficial. This approach not only allows for the full utilization of each partner’s Annual Exempt Amount but also takes into account that the Capital Gains Tax (CGT) rate is determined by the marginal rate of the disposing partner. Keep this in mind as you consider your strategy.
The Annual Exempt Amount cannot be carried forward to the next tax year, and can only be used by married couples.
Pension Annual Allowance
This year, the pension Annual Allowance increased significantly from £40,000 to £60,000. As a result, you may be able to add more to your pension tax-efficiently in 2023/24 than in previous years. The Annual Allowance is the maximum that you can pay into your pension each tax year while still benefiting from tax relief.
While tax relief is applied automatically at 20%, additional relief is accessible for higher- and additional-rate taxpayers. Utilizing joint funds to maximize contributions for the higher earner will enhance the tax relief received.
Since these choices might be a bit tricky, and they may not suit everyone, make sure to talk to us before deciding if these plans are a good fit for you.
The Annual Allowance can be carried forward for up to three tax years. So, you have until 5 April 2024 to use your allowance from 2020/21.
Contact us to talk about how to use your allowances in 2023/24 and beyond
If you’d like to discuss how to reorganise your financial plans alongside your partners, we could help. Please contact us to talk about your finances and how allowances can maximize the value of your money for both you and your partner.
