The Independent on Sunday, Independent.co.uk 19 February 2005
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
Published : 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
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
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
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
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
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
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
'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."
- posted 14 years ago