How couples can save money

Living together, even if you’re not married, can save you a fortune. And now is probably the best time to make sure that you aremaking the most of the money you have.

1. Buy Or Rent A Home Together
It’s cheaper to run one household rather than two. You’ll save money on utility bills, insurance and council tax but, most significantly, you’re likely to pay less for rent or a mortgage too.

With current house prices being so high, being able to afford your own place often means you’d have to be on a pretty large salary (especially in the South East). But pooling your resources (salaries and savings) and buying your own place can not only mean you can afford a bigger house/flat, it may also save you a fortune in rent and means your money is attacking your mortgage, not someone else’s.

Bear in mind though that, since prices have soared in recent years, now may not the best time to plunge headlong into the housing market, especially if you don’t have a large deposit to put down. Also make sure you’ve consider who will get what should, heaven forbid, you decide to split up at some point.

2. Use Your Tax Bands Wisely
If you and your partner are in different tax bands (and you both trust each other!) make the most of it and keep more of your interest.

If one partner is a lower rate taxpayer, keep your savings in his/her name. On ?3,000 in an account paying 5%, you will make ?117 per year in interest, as opposed to ?103.50 from a joint account. If he/she were a non-taxpayer, you would make ?150.

3. Make Sure You Both Use Your ISA Allowances
Everyone over the age of 16 can take out a mini-cash ISA each year, to deposit up to ?3,000 for tax-free interest. And everyone over 18 can have a mini-share ISA, to invest a further ?4,000 into equities.

Those with a bit more money can take out a maxi-share ISA (instead of mini ISAs) to invest up to ?7,000 into equities.

You both have this allowance so make the most of it and you still have time to use up your 2004/5 allowance if you open your account before April 5th.

4. Wills
In order to make sure you and your partner are protected, make sure you both have up-to-date wills.

Everyone, and that includes married people, should have an up-to-date will. By taking a simple trip to see a solicitor and writing your wills, you can take control of your assets and most importantly, save money by reducing the amount of inheritance tax (IHT) your partner will have to pay from your estate upon your death.

IHT is currently payable at a whopping 40% on anything in your estate over ?275,000 and when you bear in mind this includes your home, it may not seem such a ridiculously large sum. (You can learn more here about Wills and Living Together.)

5. Pensions & Life Insurance
Couples who live together, unlike married couples, are not entitled to receive the state pension or bereavement allowance for deceased partners. Taking out a suitable life insurance policy can help provide for your partner in this case.

In addition to this, not all company or private pension schemes will pay out to partners. Check the details of your scheme, and consider moving if necessary.

6. Capital Gains Tax
A husband and wife living together can transfer assets from one to the other without having to pay capital gains tax (CGT).

Everyone has a “personal CGT exemption” of ?8,500 in 2005/2006. This means the first ?8,500 net gains you make in a financial year does not need to be taxed.

So, for example, if you bought some shares a year ago for ?5,000 that are now worth ?20,000, you’ve made ?15,000 profit. Deducting your CGT personal exemption of ?8,500 will leave you ?6,500 to be taxed on. If you’re a 40% tax payer, you’re going to lose ?2,600!

But if you were to use your spouse’s allowance and transfer some or all of your shares to him or her, you could avoid this, as the Government allows married couples to transfer shares and property between each other without paying CGT. In this example, you could transfer half the shares to your spouse, so that you can both use your ?8,500 annual exemption, which would more than cover the total gain of ?15,000.

There must be some trust involved as it must be made as a ‘gift without reservation’ the new owner has complete say over what happens to it!
In a similar way, if you’re paying tax on share dividends, you can reduce your tax bill by transferring this capital to the spouse in the lower tax bracket. This would serve to reduce your overall tax bill as a couple, and only applies to married couples – not live in partners.

7. Inheritance tax
This last one is just for married couples as well.

Transfers of assets between spouses are also exempt from inheritance tax. This is the tax you have to pay on your assets when you die. It’s levied at 40% on assets above ?275,000. But any gifts left to your spouse are exempt from inheritance tax. See our introduction to inheritance tax and guide to wills for more information.

More information
Motley Fool is a treasure chest of good advice on everything financial. And it’s written like your everyday person wrote it, not an accountant! Visit www.motelyfool.co.uk and be sure to check out the section for women’s finance.

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