The question of trust when sharing assets: Sarah Coles
Do you trust your spouse? It’s an incredibly vexed question. I’d trust mine with my life, but I wouldn’t rely on him to walk past a sale at a guitar shop with more than a fiver in his pocket.
So I’d be incredibly torn if someone asked me if I trusted him enough to give him thousands of pounds in order to save tax. When we asked a similar question in a recent survey, however, most people were much nicer than me, because around three quarters said they would. The potential benefits are enormous, but it’s vital to consider the risks too.
There are some huge advantages to planning as a married couple, because by passing assets between you, you can pay much less tax. It means you can both take advantage of your ISA allowances of £20,000 each a year – plus your pension allowances of up to £60,000 each - so you can protect significant sums from tax every year.
You also both have the same tax-free allowances, which you can use before you pay any tax at all. These include your personal allowance, personal savings allowance, dividend allowance and capital gains allowance. It means that if you have assets outside tax wrappers, and you don’t have enough allowance available to move them inside, in some cases you can hold a balance between you that means you pay no tax on your savings and investments.
If you do all of these things, and you still have some assets that will attract tax, you can ensure they’re held by the person on the lowest rate of tax, so at least some of the gain, interest or dividends are taxed at a lower rate.
Of course, it’s not just married couples and civil partners who can do this. You can technically share investments with anyone, but the key is that that there is no tax of any kind to pay when you hand them to a spouse. If you were to give investments to someone other than your spouse, the gain those assets had made since you bought them would be calculated, and if it was more than the CGT allowance of £3,000, there could be tax to pay.
If you were to give cash from your savings to anyone, it wouldn’t trigger a tax bill, because there’s no capital gains tax on cash. However, if you gave this money to someone other than your spouse and it was over the annual inheritance tax gifting allowance, it would still be considered as part of your estate for the next seven years, so there’s another tax to worry about.
There are plenty of benefits from sharing assets with your spouse, but you need to understand the risks. You’re not asking them to hang onto this money for you: you have handed over ownership of it, so it belongs to them. Legally, they are free to do what they want with it. If you have a strong relationship, and a clear understanding of shared goals, this may not be a concern. However, you have to ask yourself whether this will always be the case.
If things break down and you get divorced, you may be able to come to an agreement about how you share your assets, or the courts will divide things in a way it thinks is fair. However, that doesn’t mean you’ll get this money back on the grounds it was yours in the first place. Any court will prioritise needs and start with equality, so you wouldn’t see a significant chunk of these assets again. There’s also the possibility that an estranged spouse will spend as much of the money as possible in order to reduce your settlement.
Even if your relationship remains strong and you’re together for life, the money isn’t guaranteed to be protected. If your partner has any issues around money, or any problem debts, they could make poor decisions with this money.
There’s a huge amount of trust involved in handing over this money, so we ran a survey to see whether people trusted their spouse enough to do it. The good news is that three quarters of people do. However, some groups are more trusting than others.
The more assets someone has, the more likely they are to trust their spouse with some of them – with 79% of savers and 84% of investors saying they would be happy to share assets to cut a tax bill. Higher earners are also more prepared to hand over their cash. This will be influenced by the fact they have more to gain from the move, and some will already have shared assets and felt the benefit. It also owes something to the fact that if wealthier people lost some assets, it might be less devastating to their finances. This could help explain why men trust more than women (79% compared to 69%).
Older people are also most likely to trust their partner. This may be because they tend to have been together for longer, and therefore have built up more trust. However, this isn’t the only factor, given that younger people are more likely to say they would trust their partner with their assets than those aged 35-54. This could be because in some cases for younger people this is more of a theoretical possibility than a likely probability. It might also be because the squeezed middle face some testing years – both financially and emotionally. On average, women marry at 31 and men at 33, and the average divorce comes 13 years after marriage – falling squarely within this age group. Trouble in the relationship might test one another’s trust.
Only you will know whether you trust your partner enough to hand over assets. It’s not necessarily a damning indictment of your relationship if you don’t. You can love and trust your partner, and have full faith they are working towards the same goals as you – and yet it would still be OK to hold back on the basis that neither of you can know what’s going to happen in the future. I honestly don’t know what the answer would be for me – it might depend if there was a guitar sale on.
Inflation and interest rates
Figures out this week showed inflation held at 3.4% in May. This is unlikely to change the market’s expectation that despite no movement this week, the Bank of England is likely to cut interest rates twice more by the end of the year.
Of course, the June figures could bring decidedly less welcome news. The spike in energy prices caused by the Israel-Iran conflict will feed through into pain at the pumps, and will start to pass through into the costs of producing and transporting all other goods. A lot will depend on how long higher oil prices endure, but if it stays higher for longer, it could mean more caution on cuts.
Rate expectations are one major factor in pricing savings, annuities and mortgages, so expectations of cuts put downwards pressure on the rates on these products. However, it’s not all about rate expectations. The other major factor driving the market is bond yields. These are on their way up, which tends to raise these rates.
It means the markets are being pulled in opposite directions. This is clear in the mortgage market, because margins are so tight, so some lenders have cut rates and others raised them. For savings and annuities it tends to mean less movement overall.
This tension means it’s difficult to predict where savings, mortgages and annuities will go next. It means that instead of trying to second-guess global political developments, it makes sense to focus on your own needs. Then shop around among online banks and savings platforms, mortgage brokers and annuity search engines to make sure you’re getting the best possible deal you can.