The Independent on Sunday, Independent.co.uk
19 February 2005A 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 Published : 19 February 2005
BANK ACCOUNTS
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.
MORTGAGES
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.
TAX
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."