A couple's guide to fewer rows over cash
Mortgages, bills and taxes can be a domestic minefield but there are ways through, says Faith Glasgow
Saturday 19 February 2005
It's an honourable tradition that couples argue about money matters. Whether the issue is overspending, miserliness, differing priorities, what belongs to whom, or simply not enough to go round, there's plenty of scope for tight-lipped moments.
But while you can never exclude external financial calamity, it is quite possible to establish sensible household ground rules, ensure that your money is working efficiently for you both, and minimise the risk of falling out financially.
If you have complex financial affairs to squabble over, it's a good idea to consult a financial adviser. If it's basically a matter of a shared bank account and mortgage, it could still be well worth giving your finances an overhaul yourselves. You may well be able to save money in the process, but you may also find you're clearer about exactly how much of whose money is going where, and why.
In the olden days of single-income families, it was so easy. I grew up in a family where, as my mother once observed with a note of complacence: "What's your father's is mine, and what's mine is my own." The household ran on a single bank account, my mother had her own savings account, and everything was simple.
Times have changed. The Alliance & Leicester recently commissioned research which indicated that a third of couples now keep their cash in a joint bank account, and more than a quarter keep their finances separate from each other. Couples may have two incomes, two properties, even two families to sort out when they get together, and financial independence is a major consideration.
Couples who have recently started to live together need to sit down and have a budget conversation. This involves a long, hard look at money coming into the household, bills going out, and the goals for which they'll need money in the future, and then working out how to organise the cash flows equitably.
Many couples nowadays retain separate accounts for their own expenses but run a joint "house" account, into which they both pay a set sum (fixed in proportion to earnings) each month, and to which they both have access. Bills can be paid by direct debit out of the joint account; it may also fund household shopping and other shared expenses, and include a fund for household emergencies such as exploding boilers.
If you're reluctant to commit to a joint account (the A&L survey suggested that one of the main reasons given for not having one was a fear that the partner would spend irresponsibly out of it), the regular outgoings can be divvied up and paid from separate accounts.
Set up a separate high-interest savings account (or separate accounts) for longer-term savings for wedding, house deposit, holiday or the day you start a family - and make a pact not to dip in for lesser reasons.
If your savings are with the same bank as your current account, you may be able to "sweep" across what's left in the latter at the end of each month. But there's a strong counter-argument for shopping around, rather than heading straight back to your current account provider: top savings rates (now well over 5 per cent gross) come from no-notice internet accounts, whereas many high-street savings accounts are paying less than 3 per cent.
If you're already joint mortgage-holders, take a look at the rate you're paying. Ian Giles, of specialist remortgaging broker Purely Mortgages, points out that about half the UK's residential mortgage-holders are paying the lender's standard variable rate (SVR), usually by default after their fixed or discounted deal has ended.
"If you're already on an SVR, you could save £2,000 a year on a £100,000 loan by remortgaging with a new lender," he says. "Couples coming to the end of their current deal should also take action, or they could find themselves paying an extra £150 or £200 per month, which could mess up a tight budget. Remortgaging is a bit of a hassle, but it's a lot easier than it used to be, and for an extra few hundred pounds a month, it's worth it."
What kind of mortgage? "Couples without family plans are going for discounts because they're marginally cheaper at the moment. They can handle rate rises in the future if they're both earning," says Ian Giles. He says fixed rates are popular with clients planning to start a family and needing peace of mind about their budget.
However, as Duncan Pownall, of Bradford & Bingley, points out: "Fixed-rate deals are much the same price as discounted at present, but the signs are they are likely to go up in the coming months; so if you want the certainty of a fixed mortgage, don't hang about."
It's also important to look at the terms surrounding the house finance. If you're taking out a joint mortgage, you should have life insurance on your partner's life, to repay their share in the event of their death. "If they die, the proceeds then go to you, rather than to their estate," says Pownall.
What about property ownership issues? Ownership, whether you're married or not, may be in the form of "joint tenancy" (the usual arrangement for married couples), where both partners jointly own the entire property and it passes as a matter of course to the surviving partner on the first death.
The alternative is to be "tenants in common", where each partner owns a defined proportion of the property. This arrangement may be more straightforward if you're relatively likely to go separate ways at some point. It can also offer tax-planning advantages over joint tenancy.
But one option that could prove expensive (and if you're married, unnecessary) is simply sticking your name on your partner's existing mortgage, because it may incur additional stamp duty at 50 per cent for the total mortgage amount. On a £200,000 mortgage (stamp duty levied at 1 per cent) that would amount to £1,000.
If you're getting married, says Pownall, there are few benefits to putting the property into joint names, as both partners would have a claim to the property if you split up, irrespective of whose names appear on the deeds, and it would automatically pass to the survivor if one spouse died. "Provided life cover is in place to repay the mortgage, there's little financial advantage to adding your partner's name," he says. If you're not planning to marry, there's a stronger argument for having both names on the deeds to ensure fair rights if the property is sold.
The basic point as far as income and capital gains tax are concerned is to make full use of either partner's lower-rate tax status. "It may be best that an asset - shares, unit trusts or a second home - is absolutely in the hands of the non- or lower-rate taxpayer, so that less tax is paid on any income," says Anne Young of Scottish Widows.
Transfer of assets such as shares is simply a matter of changing the name under which they are registered. But the process is treated as a disposal and may trigger capital gains tax. If you're married, that's not a problem because you're free to give each other whatever you wish. But if you're not, try to keep capital gains below the annual CGT allowance (£8,200). Any excess is taxed at your normal rate.
The biggest deal for couples, according to Christine Ross at SG Hambros, is inheritance tax. No inheritance tax (IHT) is charged when assets are bequeathed from one spouse to the other - but the IHT allowance of £263,000 (the nil-rate band) of the dead partner is lost in the process.
"There's an easy way for married couples to save money on death," says Ross. "Each partner's will could include what's known as a discretionary will trust clause, specifying that on their death, an amount up to the nil-rate band is left to trust and the rest to their spouse. The surviving spouse could be a beneficiary of the trust, so would be able to enjoy use of the assets - including the house - for as long as they lived, but the contents of the trust would stay outside their estate when they died."
If you own your house as tenants in common, she continues, there is the advantage that each spouse's proportion of the property can be put into trust and kept outside the other's estate when the second partner dies.
"Basically, if you're long-term partners and want to be tax efficient, then you're much better off married," says Ross.
MORE TIPS FOR COUPLES
* Partners who are not earning can set up a Stakeholder pension and put up to £3,600 a year into it. Even if they pay no tax, they get tax relief at 22 per cent on contributions. If they don't have the income to contribute, someone else (eg, their cash-rich partner) can fund it.
* Pre-nuptial agreements carry no weight in law; but if one exists, then assuming it was fairly drafted and both parties agreed to the terms, it's likely to have a bearing on the settlement if you split.
* Look at your insurance. If you're single, critical illness cover is more useful than life insurance; but as half of a couple, life cover ensures that your partner is catered for if you die.
* There are savings on insurance. Richard Mason, of insuresupermarket.com, says: "Joint travel cover is cheaper than two single policies, and this applies to most other policy types, including life cover and contents insurance."
'I run the finances. We don't argue about money'
If you are keen to clear your mortgage efficiently, look at offset mortgages, where the money held in current and savings accounts with the mortgage provider is set against the mortgage debt to reduce the interest payable on it.
Jennifer and Christopher Hanson have an Intelligent Finance mortgage, with an IF Isa, current account and savings account. "We have separate bank accounts elsewhere and pay in a sum to the IF current account each month for expenses; anything left over goes into the savings," says Jennifer.
Jennifer, a senior PR consultant, is on maternity leave. "Christopher used to pay the bills, but I run the finances these days," she says. "We don't argue about money, but I'm a saver and a bargain hunter, whereas he can be a bit spontaneous. So the system works well now."
- 1 How the language you speak changes your view of the world
- 3 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 5 YouTube social experiment shows just how easy it is to kidnap a child
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
In defence of liberal democracy
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
Day In a Page
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park