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."
Fuel poverty could kill 100,000 vulnerable people over the next 15 years, charity warns
Bargain Hunter: Affordable art - suddenly being a collector is just a walk in the park
Phoenix Life: Chance of a refund for overcharged policyholders has risen
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Simon Read: That's right, BT, they'd rather pay for a free service
- 1 Michelle Rodriguez: Fast & Furious actor apologises after telling 'minorities' to stop taking on 'white' roles
- 2 The black and blue dress: Makers considering a white and gold version
- 3 This is what it's like to be dead, according to a guy who died for a bit
- 4 PornHub turns masturbation into energy in bid to save the planet
- 5 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Russia's roadmap for annexing eastern Ukraine 'leaked from Vladimir Putin's office'
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
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 deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads