Planning to spend your life together? Then plan to spend it wisely…

If you and your partner are planning a future together, you should think about planning your finances together too.

Not only will it help make sure your goals are aligned, it also opens up some significant tax advantages.

After all, if the goal is to share what you have, it makes sense to share it efficiently…

1. Are you paying into your partner’s pension?

Paying into your partner’s pension can be a great way to build up a pot for your future in a tax efficient way.

For example, if you’ve used up your annual allowance but your partner hasn’t – you might choose to contribute to their pension as well as your own.

If your partner has no income, you can make use of their stakeholder allowance – and pay up to £2,880 a year, which the government will top up to £3,600 through tax relief.

Likewise, if your partner’s income is less than £60,000 – they can make a gross payment of up to that amount. E.G. if they earn £50,000 a year, you can make a net payment of £40,000 and the government will top that up by £10,000 in income tax relief – having only paid £7,500 in income tax that year in this example. In other words, the government will pay them £2,500. Cool, right?

Even if you haven’t used up your annual allowance, it still might make sense to contribute to your partner’s pension – to ensure you both have tax efficient savings to rely on in later life.

Remember:

• You can take up to 25% of your pension as a tax-free lump sum
• And you can use your tax-free allowance to take a further £12,570 a year
• Beyond that, anything you take out will be subject to income tax

(And that will be taxed at either 20%, 40% or even 45% – depending on your tax band)

So, by ensuring you and your partner both have a pension pot to draw from – and two sets of allowances / bands to utilise – you can massively reduce the amount of tax you and your partner will have to pay overall.

2. Are you paying into your partner’s ISA?

Just like with pensions, you can also pay into your partner’s ISA – effectively doubling your annual £20,000 ISA allowance.

Like all long-term investing, the sooner you invest, the longer your investments have to accrue compound interest. And in an ISA, all of that growth will be tax-free.

3. Is one of you holding large amounts of cash?

It’s a good idea to have some emergency cash reserves in an easily accessible account.

But holding cash for you and your partner in just one account – even a joint account – isn’t so smart…

If you’re a higher or additional rate taxpayer, it’s likely you’ll have to pay tax on any interest you earn from your savings account.

At the moment – with some banks offering as much as 4.5% for flexible savings accounts – the interest you earn could be considerable.

Remember:

• Basic Rate Taxpayers can earn £1,000 in interest tax-free
• Higher Rate Taxpayers can earn £500 in interest tax-free
• Additional Rate Taxpayers are not entitled to a Personal Savings Allowance

By splitting your emergency cash reserves across two accounts – particularly if you and your partner are in different tax bands – you can reduce the amount of tax you’ll have to pay on any interest you earn.

Let’s talk about you…

Ultimately, what’s right for you and your partner will depend on all sorts of things. Not least of all, your current financial situations, your future goals, and what would happen if you were to split up. But by working together, and with some independent advice, you can make a plan that works for both of you.