A recent report from the Institute for Fiscal Studies (IFS) confirms that the government’s stealth taxes represent a £52 billion a year increase for UK taxpayers.

Freezes to the Personal Allowance and the higher-rate threshold (among others) and drops to the Capital Gains Tax (CGT) Annual Exempt Amount will affect millions of UK households. 

The IFS reports that Income Tax freezes will mean 6.5 million more people paying the tax and 4.5 million more higher-rate taxpayers by 2027 than there were in 2020. CGT receipts, meanwhile, were up 15% in 2021/22 on the previous tax year and are set to increase further.

This makes right now the perfect time for your clients to revisit their finances and look for tax-efficient ways to reach their goals. They might even consider organising their finances as a couple.

3 benefits of organising finances with a partner

1. Joint decisions are often better ones, while communication could identify shared goals 

Money can often be a taboo subject, even within couples. 

In fact, an Aviva report released to coincide with Valentine’s Day 2023 found that 38% of surveyed Brits currently in a relationship admit to “financial infidelity”. 

This usually means hiding debt from a partner or having “secret” accounts with stashed money that they don’t know about. The report found that those with hidden savings have, on average, around £1,600 squirrelled away.

Sitting down with a partner to jointly plan finances could prove the perfect chance for your clients to open up about their financial position and aspirations. Looking for areas where goals align can make it easier to reach joint decisions on how to achieve them. Your clients might find that the chance to discuss different options – hearing different opinions or counterarguments – helps them to arrive at a better decision in the long run.

A couple’s goals don’t need to be identical but there will likely be ways to ensure they complement each other.

2. It can be tax-efficient for a couple to think carefully about how they accumulate and withdraw retirement funds

Pensions are incredibly tax-efficient but poor planning can be costly. There are ways for couples to make the most of tax relief on contributions and Income Tax on withdrawals, but there could be non-financial, psychological reasons to balance wealth too.

Tax relief

Tax relief applies automatically at the basic rate of Income Tax, but higher earners can claim extra relief via their self-assessment tax return. 

If the higher-earning partner is subject to the full £60,000 Annual Allowance (for the 2023/24 tax year) making full use of this might be the most tax-efficient way to save.

It’s vital clients know what allowance applies to them. This can be complicated but we can help here.

Pension withdrawals

Equally, there might be a case for couples balancing out their pension wealth so that withdrawals can be made tax-efficiently.

Taking out large sums in one go could lead to a large tax bill and could even move an individual into a higher tax bracket. Making two smaller withdrawals could allow both partners to remain in their current bracket and mean the same amount can be withdrawn with less tax to pay.

There are also psychological advantages to both partners feeling like they are contributing equally to the partnership. This can help to avoid financial infidelity and money arguments.

3. Staying on top of frozen allowances and planning for future threshold drops could lower a couple’s tax bill

Income Tax and the Marriage Allowance

For the Marriage Allowance to apply, one partner will usually need to have income below the Personal Allowance (currently frozen for the 2023/24 tax year at £12,570).

The lower-earning partner effectively transfers £1,260 of their Personal Allowance to their spouse or civil partner. This reduces their tax bill by as much as £252 for the tax year.

Claims can be backdated so checking eligibility could lead to a sizeable reduction.

The Capital Gains Tax Annual Exempt Amount is falling

Couples pay Capital Gains Tax (CGT) when they dispose of assets and make a profit that exceeds the Annual Exempt Amount.

CGT receipts, and the number of people paying the tax, are already on the rise. According to MoneyAge, UK taxpayers handed over £16.7 billion in CGT during the 2021/22 tax year, up 15% on the previous year. The number of people paying the tax, meanwhile, has doubled in the last 10 years.

For the 2023/24 tax year, Jeremy Hunt more than halved the Annual Exempt Amount, from £12,300 to just £6,000. It will drop to £3,000 in 2024/25.

Being aware of this falling threshold should allow couples to time their disposals on either side of a tax year. There’s also the option to transfer assets between spouses and civil partners, effectively doubling the size of the Annual Exempt Amount. 

It’s also worth noting that the rate of CGT is dependent on the rate of Income Tax paid by the person disposing of the asset. Transferring assets to a lower-earning partner could lower the rate of CGT payable on the disposal.

Get in touch

If you have clients who would benefit from planning their finances as a couple get in touch. Email enquiries@boolers.co.uk or call 0116 240 7070.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. 

This article is for information 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.