How to combine finances as a couple: Joint accounts, mortgages and tax perks

Living with a spouse, civil partner, or just a long-term partner, will nearly always mean a degree of shared financial responsibility.

This may be anything from splitting the bills or sharing a mortgage to  having fully combined finances where ‘What’s mine is yours’.

Which way is better? What will work best will depend on your joint responsibilities and your attitude to money - all of which are highly personal. What works for one couple, won’t work for the next.

In this piece we’ll look at how you can combine your finances and some of things you’ll need to think about first.

6 ways to combine finances as a couple

There's more than one way to bring your money together as a couple, and the right mix depends on your circumstances.

Here are six of the main options:

• A joint mortgage

• A joint credit card

• A joint bank account

• The marriage allowance

• Tax-efficient investing

• Getting joint financial advice

Getting a joint mortgage with your partner

Lots of people will start truly combining their finances when they take out a joint mortgage to buy a home.

Buying with a partner often means you can get on the property ladder faster, because you can pool your savings to raise a bigger deposit. This reduces the amount you need to borrow and may mean you can access lower mortgage rates.

However, a joint mortgage also carries risks. If your partner can’t (or doesn’t) keep up their share of the repayments, you will be liable for the whole cost (or else lose the property).

If you contribute different amounts (whether to the deposit or the repayments) it’s important to seek legal advice to agree how the property should be owned. 

• Joint tenants: You both own the whole property equally and if one of you dies, the other inherits it automatically.

• Tenants in common: You each own a share of the property and can leave it to someone other than your partner when you die. This route is helpful if one of you has made a bigger financial contribution to the purchase than the other.

The rules are different between unmarried couples and spouses - on divorce, 50/50 is often a starting point for the division of assets, no matter who owns them legally.

The pros and cons of joint credit cards

A joint credit card can be a helpful way for couples to manage joint expenses, whether that’s buying new furniture when they set up home or to book a holiday.

The main advantage here is being able to keep track of your joint expenditure without combining bank accounts.

The main point to be aware of is that you are both liable for the debt, which may cause problems if one of you uses it for individual spending.

You will also need to agree between you, how and when the debt will be repaid. If you don’t have an 0% credit card, it’s best to pay it off in full every month to avoid paying interest charges.

If one partner has a better credit score then it may make sense for them to be the primary cardholder.

This may result in a card with more favourable terms, from which both partners can then benefit.

That said, the partner with the lower score may benefit from having their own personal card and paying off the balance in full each month, as this will improve their credit score.

Managing money together with a joint bank account

To manage a joint bank account well, agree upfront on what it's for, whether that's covering all household spending or just shared bills, and review the arrangement regularly so it keeps working for both partners.

Some couples will put all their money into a joint current account, while others will just contribute enough to cover joint expenses.

A joint account works best when both partners have similar attitudes to spending and saving.

It may also make sense in cases where one partner earns much more than the other, to prevent a sense of unfairness developing.

The risk of a joint account is that it depends on trust, and on mutually agreed spending habits.

What are the financial planning perks for married couples?

Spouses or civil partners often have some advantages when arranging savings, investments and pensions.

The marriage allowance

One small perk for married couples is the marriage allowance.

If one spouse has earnings below the basic rate income tax band, they can transfer £1,260 of their personal allowance to their higher-earning spouse or civil partner.

This can trim their overall tax bill by up to £252 in that tax year.

Even better, if you have been eligible for the marriage allowance for a while, you can make a back-dated claim for up to four years and get around £1,000 back.

Investing

If you have stocks and shares, it’s best to keep them in an ISA to shelter your money from tax. Each year you can pay in up to £20,000.

If you’ve used up your own ISA allowance for the year, remember that your spouse has an allowance too.  This means that together you can save up to £40,000 a year between you.

If both allowances are used up, you have another safety buffer: you each have a capital gains tax (CGT) allowance. This is currently £3,000 a year.

Married couples and civil partners can transfer assets to each other without incurring a tax bill, so that you can make full use of both CGT allowances.

Watch out here because transfers between unmarried couples are not exempt from CGT and could trigger an unexpected tax bill.

Also, remember there are lower and higher rates of CGT (check yours, as it can be quite complex). If you can ensure that the lower-rated partner makes the excess gain, then your tax bill will be lower.

Income tax

If one spouse is a higher-rate taxpayer and the other a basic-rate taxpayer, you may be able to make good use of this.

For instance, if you also have a buy-to-let property, then the income from this is taxed at the owner’s highest rate.

Transferring sole ownership into the name of the basic-rate taxpayer could potentially save a lot of money. The same applies to other sources of taxable income.

Drawing pensions

If your spouse has purchased a joint-life annuity, then this will continue to pay a guaranteed (if reduced) income to you if your spouse dies before you do.

Similarly, if your spouse has bought a guaranteed annuity, then this will keep paying out to the end of the guaranteed period, even if your spouse dies before then.

Inheriting savings

If you have an ISA, you can pass on its tax-free status to your spouse when you die.

Your spouse inherits a one-off ISA allowance up to the value of the original ISA, so the money remains sheltered from tax.

This must be claimed within three years of the date of death or by 180 days after the administration of the estate is complete.

Financial planning and advice for couples

Financial planning for couples works best with professional input, since a regulated financial adviser can give an objective view on shared money decisions and help you agree a plan for tax, saving and investing together.

Lots of couples argue about money - whether that’s who pays for what, or how to prepare for the future.

A financial adviser can provide an objective point of view and recommend an approach that works for you both.

So when you see a financial adviser, make sure you go together and talk at length about your priorities as a couple.

This should give you a clear and unbiased financial plan that addresses both your needs and personalities equally.

Get expert financial advice

Couples who choose to combine their finances can experience a range of benefits.

Working together towards shared goals can help strengthen relationships. There are also multiple opportunities to reduce the amount of tax you pay when you plan your savings and investments together.

However, combining finances can also come with risks, this is particularly important if you borrow money together - either with a mortgage or credit cards.

Unbiased can match you with an expert financial adviser who can provide guidance on how best to combine your finances with your partner’s in a way that is sustainable, manageable, and beneficial for both of you.