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For many people in the UK, it can be uncomfortable to discuss finances with loved ones. No matter how close you are to the person you’re talking to, discussions about money can still feel somewhat taboo. According to data from the Money and Pensions Service, around 47 million Brits either don’t feel comfortable talking about their finances or avoid the topic completely. Despite this, if you want to build long-term financial stability, it can be useful to discuss these topics. Read on to find out why it’s so important to talk to your partner about money.
Organising your finances with your partner can give you greater confidence about the future
There are many reasons why a conversation about money might be uncomfortable, not least if there’s a big disparity between your and your partner’s income. Of course, while this might be a sensitive subject, it’s useful to remember that you are equals when it comes to life planning. When you make decisions about your financial futures, you’re likely to be making them together. Whether you’re buying your first home or managing your pensions, your choices are going to affect you both. That’s why it’s important for both you and your partner to fully understand what assets you hold together so you can manage them most effectively. Of course, in the same vein, it’s equally crucial to discuss any debts that you may have, such as credit cards. As difficult or embarrassing as it may be to talk about this, being open about debts can help you to manage them together. No matter what your long-term plans are, organising your finances with your partner can give you greater confidence to know that you’re both on the same page.
You can make greater use of your tax allowances to build your wealth more effectively
Another important reason to talk about money with your partner is that by working together, you can grow your wealth more effectively. As a pair, you can make greater use of your allowances, enabling you to potentially reduce your tax bill by a sizeable amount. Some of the most important examples of this include: Your ISA allowance Individual Savings Accounts (ISAs) are a tax-efficient way to build your wealth, as any interest or growth is paid free from Income Tax or Capital Gains Tax (CGT). Because of this valuable benefit, there’s an annual limit on how much you can contribute into these accounts. In the 2021/22 and 2022/23 tax years, this stands at £20,000. Of course, if you manage your contributions with your partner, you can put away up to £40,000 between you in a tax-efficient way each tax year. Your Capital Gains Tax allowance When you make a profit from selling your non-ISA assets, you have an allowance for how much you can make before you have to pay tax. This is known as your “Capital Gains Tax annual exempt amount”, and in the 2021/22 and 2022/23 tax years, stands at £12,300. When you manage your finances together, you can effectively double this limit, which can help to reduce your tax bill considerably. If you have already used up your full allowance, you could potentially transfer assets to your partner before selling them, to make the most of theirs. Your Dividend allowance In the 2021/22 tax year, you can earn up to £2,000 from any dividends you hold before you have to pay tax on the profit. This means that when you organise your finances with your partner, you can effectively double this amount.
Discussing finances with your partner can give you greater peace of mind
In many relationships, there will often be one person who deals with the day-to-day finances. This might include things like paying the bills or setting the monthly budget. Of course, while this can often make sense on a small scale, when it comes to major financial decisions, it’s important that both of you are informed enough to make choices. Not only are two heads often better than one, but relying on just one person can be risky. For example, let’s say you’re the one in your relationship who manages all the finances. If you fell ill and were unable to make decisions, your partner may not have enough experience to take them over while you’re recovering. If this happened, it could seriously affect your financial stability. This is another key reason why it’s important that both parties in a relationship are able to make informed decisions about money.
Get in touch
If you want to manage your finances with your partner in a more effective way, we can help. Email us at office@verve-financial.com or call 0330 320 5048.
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. This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers. Tax treatment varies according to individual circumstances and is subject to change.
