Valentine’s Day on 14 February is traditionally the time to reflect on how happy you are sharing your life with your partner or spouse.
The sharing is likely to involve living together, enjoying key life experiences as a couple, and making plans for your shared future.
Another key feature of your partnership as a couple should be your finances: how you plan them, how you make decisions, and how you can work together to secure your future prosperity.
Read about some simple ideas that can effectively help you grow your wealth as a couple and enjoy a financially strong relationship.
1. Make sure all your key financial decisions are joint ones
It’s common in many couples for one of you to manage the financial administration.
One of you may well be better organised than the other and so are more suited to dealing with the inevitable paperwork financial arrangements create.
On the other hand, you or your partner may work in a financial environment and have more experience of bank accounts, balance sheets, investments, and the general management of money.
There’s no problem whatsoever in playing to your strengths in this way. However, it’s crucial that you both work together when key decisions have to be made.
By doing this, you’ll ensure that both of you are fully invested in your future, have a clear idea where you want to get to and how to achieve your goals.
Such decisions are likely to include:
- Where you want to live in both the short and long term
- Your respective career ambitions
- Your plans for retirement.
This will ensure that if you do have differences of opinion, they can be worked through, rather than becoming a block to your future happiness and prosperity.
2. Make the most of tax-efficient investment opportunities
It’s possible that one of you earns considerably more than the other. As the higher earner will likely pay a lot more tax on their income, you should look to mitigate this by taking advantage of tax-efficient opportunities whenever possible.
For example, if you’re paying tax at a higher or additional rate, you’ll be eligible for higher rates of tax relief on your pension contributions. It may well be beneficial in these circumstances to maximise your contributions at the expense of your partner’s.
Over time, the extra tax relief you can claim could well make a big difference to the value of your pension fund.
Also, don’t forget that (as of the 2022/23 tax year) you can both contribute £20,000 each year into a tax-efficient ISA regardless of your earnings, or even if you have no income. This means that, as a couple, you can invest up to £40,000 in the 2022/23 year and not have to pay Income Tax or Capital Gains Tax (CGT) on any withdrawals.
Both of you have a CGT exempt amount of ÂŁ12,300 in the 2022/23 tax year. This means that, as a couple, you can take combined profits from your investments of up to ÂŁ24,600 without CGT being chargeable.
Married couples can pass assets between them to minimise CGT, either to utilise your exempt amounts as far as possible, or to pay CGT at a lower rate.
Capital Gains Tax is changing soon. We would strongly recommend you read our article about the changes and how they could affect you.
3. Balance your retirement wealth as far as possible
If possible, and if both of you have sufficient income to achieve it, it can be highly beneficial for one person to accumulate similar pension funds rather than all the pension assets being held by just one of you.
There are both psychological and practical reasons for doing this.
From a psychological point of view, it will ensure you both feel like equal partners in your relationship.
And, practically, balancing your retirement wealth can make it easier to minimise the amount of tax you pay on your pension income, subject to other income sources you may have.
When you retire you should keep a close eye on your pension earnings and the applicable tax bands to ensure you’re maximising lower rates of Income Tax as far as possible. Two good-sized pension funds, rather than just one substantial one, can better help facilitate this.
We would strongly recommend you seek expert advice to help you determine how much you and your spouse should save for retirement based on your income, and the tax advantages available to you.
4. Think carefully about your life insurance plans
Simple life insurance that pays out a lump sum on the death of the insured is a staple of most effective financial plans.
It can help protect families if the partner with the higher earnings, or who is the sole breadwinner, dies.
Often couples will only set up life insurance on the higher earner. However, even if the other partner has a much lower income, or doesn’t work at all, it’s likely that their death will still have an effect on their loved ones.
For example, the loss of one partner would have a major impact if you have young children. The surviving partner may need to reconsider their employment plans, so a lump sum at this time could be invaluable.
Again, you may want to consider your options with an expert to prepare for the worst and minimise the financial impact on the rest of your family.
5. Ensure you both have wills set up
As well as managing your current wealth and plans for retirement, it’s also important for both of you to think further ahead to a time when one of you will die.
You’ve already read about the importance of having sufficient life cover for both you and your partner. A further prerequisite is that both of you need to have wills set up.
While this is a crucial financial planning step for everyone, it’s particularly important if you aren’t married. It’s wrong to assume that living together, or even having children together, will be enough to see one partner’s assets automatically pass to the other.
An up-to-date will can also help you manage your inheritance if either you or your partner have children from a previous relationship or have been married before. If either of those circumstances apply to you, you should consider them when drawing up your wills.
You can read more about wills in another of our articles, especially the importance of both of you having separate wills to cover each financial jurisdiction where you hold financial assets.
Get in touch
If you’d like to talk about your financial planning arrangements, then please get in touch.
You can contact us by email or, if you prefer to speak to us, you can reach us in the UK on +44 (0) 208 0044900 or in Hong Kong on +852 39039004.
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