Finances can be a difficult subject to talk about with a partner, but it so important to have ‘that talk!’
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Finances can be a difficult subject to talk about with a partner, but it so important to have ‘that talk!’ The earlier in your relationship you have these conversations the better. But even if your first date seems a distant memory, it is better late than never.
To help create a better financial future for you, your partner and your whole family, there are a number of big financial mistakes to avoid:
1 | Not talking about your finances
Talking openly about your finances is vital. An awkward conversion today could prevent much more difficult discussions later down the line. It’s essential both partners understand decisions being made about their combined wealth.
We know it’s sometimes difficult for both partners to attend a financial planning meeting, but it is important to make the effort. If you were to separate or divorce, or indeed, if one of you were to become ill, or worse, it could leave you or your partner vulnerable, especially if there is limited understanding of the financial aspects of the relationship.
Talking openly about your finances and making decisions together can boost your chances of achieving your financial goals, reduce financial stress and build trust.
2 | Only linking your current accounts
A key benefit of discussing your finances is being able to make use of linked accounts and investments. Often the conversation about linking finances ends at the convenience of the shared current account and a jointly held mortgage.
Linking all your accounts, investments and insurance can increase your returns and reduce costs. By making the most of tax allowances, you may be able to reduce tax liabilities.
Additionally, you may also wish to explore other options available that could help you save money such as joint life cover, car insurance, or other similar products.
3 | Holding assets in the wrong name
Making sure your assets are held in the right name and product can reduce your tax liability, increase your return on savings and make sure the right people benefit when you die. For example, exploring whether to top-up your partner’s pension rather than your own can ensure you are receiving the maximum tax relief.
Quilter’s research shows that many couples could achieve 40% more return on interest payments in savings accounts if they were placed in the name of a partner on a lower tax band.
4 | Protecting one life only
An all-too common mistake is the failure to buy life cover for one partner. While the working partner will often have life cover and death-in-service benefit as a part of their employment benefits, they overlook what would happen if the non-working partner were to pass away. For example, how would you pay for childcare in order to continue working?
It’s important to ensure both partners are adequately covered in case the worst happens and speaking to financial adviser is a good place to start. Not only will this give you the peace of mind that those who depend on you will be taken care of if you were to pass away, but it would also make a difficult situation far easier for your loved ones if the worst were to happen. The consequences of unmarried couples not putting life assurance in trust can also be quite devastating.
Family protection may not be as expensive as you imagine, with basic life cover starting from just a few pounds a month.
5 | Making the most of inheritance tax allowances
Much of government policy around the tax benefits of your personal finances still favour those who are married or in a
civil partnership. This current tax year (2022/23), you can pass on up to £175,000 of your property tax-free, which is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner. That’s layered on top of your inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1m inheritance free as a couple. However, note this is ‘tapered’ at a rate of £1 for every £2 of excess if the overall net value of the estate on death exceeds £2 million.
This also only works for those with direct descendants to inherit the family home and is capped at the value of the property being inherited (less any mortgage outstanding), while the UK’s six million cohabitees are less fortunate and cannot claim the combined allowances.
6 | Not making a will
Making a will is one of the most important steps you can take to protect your family after you're gone. It allows you to make sure your kids are taken care of financially and emotionally by naming guardians and designating how you want your assets to be divided. If you're not married or in a civil partnership, you need a will to ensure that your surviving partner benefits from your estate.
A will allows you to make sure that stepchildren or children from a previous relationship are provided for according to your wishes.
As well as discussing your finances with your partner it’s also important to discuss them with an expert. An adviser will help you to budget and plan more effectively as a couple and ultimately help you reach your financial goals.
By Daren Wallbank
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 03/03/2023
Sources: – How Inheritance Tax works: thresholds, rules and allowances: Overview
https://www.quiltercheviot.com/SysSiteAssets/documents/adviser-delta/adviser-delta-report-highlights.pdf
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