A healthy relationship is a partnership in which you support one another and build a life together. Your finances are an important part of this and if you work together, you may find it easier to achieve your dream lifestyle now and in retirement.
However, IFA Magazine reveals that 22% of people find talking to their partner about money “awkward”. If you fall into this group, you could be missing some excellent opportunities to grow your wealth.
Read on to learn five effective retirement planning tips for couples.
1. Create shared goals for retirement
Before you consider the intricacies of building wealth for retirement, it’s important to discuss your goals for later life.
Naturally, you may have shared priorities about spending time with family, travelling, or your living situation. However, you may disagree on certain points and could be working towards different aims in retirement, making it harder to effectively build wealth.
Conversely, if you resolve these conflicts now, you can create shared goals and work together to achieve your dream lifestyle.
Having these discussions as early as possible ensures that you’re on the same page, and both understand why you’re making certain financial decisions. Your joint goals could also help you stay motivated as you prepare for retirement.
2. Maximise your pension contributions
You and your partner may draw a large portion of your retirement income from your personal pensions. As a couple, you could make use of certain allowances to maximise your pension savings.
When you contribute to your pension, you typically receive 20% tax relief at source. You may also be able to claim another 20% or 25% tax relief through self-assessment if you’re a higher- or additional-rate taxpayer.
However, the total amount of tax-efficient pension contributions you can make each year is limited by your “Annual Allowance”. In 2024/25, this stands at £60,000 or 100% of your earnings, whichever is lower.
If you earn more than your partner, you may find that you use your full Annual Allowance, while they don’t. In this instance, you could consider contributing to their pension on their behalf.
The contributions are treated as if your partner had made the payments themselves. As such, they could benefit from tax relief at their marginal rate on contributions up to their Annual Allowance.
Bear in mind that if the total contributions – their own contributions, all third-party contributions including from an employer, and tax relief – exceed their Annual Allowance, they may trigger a tax charge.
Also, if you or your partner are high earners or have flexibly accessed your defined contribution (DC) pensions, your Annual Allowances could be lower.
Making the most of both your Annual Allowances in this way could allow you to maximise the amount of tax relief that you benefit from as a couple, meaning you build more wealth in your pensions.
3. Use both your ISA allowances each year
As you save for retirement, it’s important to consider the tax you might pay. Fortunately, as a couple, there are some important tax-efficient allowances that you could share, making it easier to mitigate tax.
For instance, you don’t pay Income Tax, Capital Gains Tax (CGT), or Dividend Tax on interest or growth you generate from savings in an ISA. Additionally, ISA withdrawals are free from Income Tax.
In 2024/25, you each have an ISA allowance of £20,000, meaning that you can tax-efficiently save up to £40,000 between you.
If one person has used their full allowance, you may consider contributing to the other person’s ISA instead of saving elsewhere.
Additionally, you can contribute up to £9,000 to a Junior ISA (JISA) for each child, and this is separate from your adult ISA allowances.
Contributing to your partner’s ISAs or a child’s JISAs to use all available allowances could reduce the tax you pay.
4. Transfer assets to your spouse or civil partner to mitigate Capital Gains Tax
If you have both used your ISA allowances and continue investing in a General Investment Account (GIA), you could be subject to CGT when you sell those investments.
In 2024/25, you can earn up to £3,000 from selling or otherwise “disposing of” qualifying assets before you pay CGT. This is known as your “Annual Exempt Amount”.
In her recent Budget, Rachel Reeves announced that CGT rates would increase with immediate effect on 30 October 2024. As a result, any gains that exceed your Annual Exempt Amount could be taxed at:
- 18% if you’re a basic-rate taxpayer
- 24% if you’re a higher- or additional-rate taxpayer.
However, you can pass assets to your spouse or civil partner without CGT. They may be subject to CGT if they later sell those assets. Yet, you could still reduce your tax liability by making use of both allowances.
For example, imagine you bought some non-ISA shares for £5,000 and later sold them for £10,000. In this case, you would make gains of £5,000.
If you’re a higher-rate taxpayer, you would pay 24% CGT on the remaining £2,000 after the Annual Exempt Amount is applied (assuming you made no other gains that year). This leaves you with a bill of £480.
Yet, if you transferred half of the shares to your spouse or civil partner, and then sold them, you would each make gains of £2,500. Consequently, neither of you would exceed the Annual Exempt Amount and so wouldn’t pay CGT. Again, this assumes that you didn’t make any other capital gains in that year.
Additionally, if your partner is in a lower tax band, they could pay CGT at a lower rate than you.
5. Be aware of the unique challenges for unmarried couples
Couples who are not married or in a civil partnership still have some excellent opportunities for joint planning. However, there are also some unique challenges you might need to consider.
For instance, unlike a spouse or civil partner, a cohabiting partner is not automatically entitled to any part of your estate when you pass away. As such, it’s important to keep your estate plan up to date.
Additionally, it could be more difficult to mitigate Inheritance Tax (IHT). This is because, in 2024/25, you can pass on up to £325,000 to your beneficiaries without IHT. This is known as your “nil-rate band”. You may also benefit from an additional £175,000 “residence nil-rate band” when passing your main home to a direct descendant such as a child or grandchild.
Crucially, you can pass your entire estate to a spouse or civil partner without IHT, and they inherit your unused nil-rate bands. This means couples who are married or in a civil partnership could pass on up to £1 million between them before IHT is due.
Yet, if you are an unmarried couple, you can’t do this, so it may be more difficult to mitigate IHT.
Read our previous article on the best financial planning tips for unmarried couples for more information on these challenges.
Get in touch
We can support you and your partner in planning for your dream retirement as a couple.
Please give us a call on 01276 855717 or email info@braywealth.com today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients 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.
The Financial Conduct Authority does not regulate estate planning, cashflow planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The value of your investments (and any income from them) 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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by the Openwork Partnership on 25/11/2024
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