The NINE common money mistakes couples make that could cost you thousands – including the little-known ‘marriage allowance’

Ask anyone in a relationship for some of the most common mistakes that they and their partner make and they’ll probably say it’s to do with poor communication or perhaps not prioritising each other.

It’s unlikely that forgetting to claim a lucrative tax exemption or ignoring each other’s risk tolerances will be on the list.

But most couples inadvertently make a whole string of financial mistakes that could cost them hundreds of thousands of pounds over the course of a long relationship.

Here, financial experts share nine of the most common slip-ups that couples across the country are making – and what you must do now to avoid falling foul.

Failing to discuss money goals with each other

Talking about money with a partner can be awkward. But avoiding it means you could be less likely to reach your goals because it can create a financial blind spot between you.

Alice Haine, of investment platform Hargreaves Lansdown, says: ‘Couples who make decisions together are more likely to be on track with their savings, home ownership goals and their pensions.’

Sharing goals creates a joint financial accountability between partners. However, just 25 per cent of couples agree to tell each other everything about their finances while 26 per cent share some information, Hargreaves’ research reveals.

Haine recommends thinking of common goals for your money, whether that’s a short-term goal such as a summer holiday next year or a medium target like a new sofa or refurbishing your kitchen.

Equally, hiding money troubles can quickly lead to them spiralling out of control.

Two in five debtors are keeping their growing burden a secret from someone close to them, according to research by financial firm Aviva.

Sarah Coles of AJ Bell says: ‘Not being honest about money problems can feel like you’re protecting your partner. But the longer it goes on, the worse it gets.’

Living together without an agreement

More than 3.5 million unmarried couples who cohabit are risking a financial disaster if they fail to have a key document in place.

If you are unmarried and break up, you have no automatic protection, no matter how long you have been together.

The Government is working on a set of reforms to give cohabiting couples more protections, but these plans are far from becoming law.

For now, however, a cohabitation agreement could save you thousands of pounds.

This is a legal document that sets out who owns what, who gets joint assets in the event of a split and how property will be divided.

It can lay out who owns pieces of furniture, who will keep a shared pet and how joint savings will be distributed, for example.

You don’t need to go to a solicitor to create one, but it is advised that you do.

At the very least, couples should write out their intent on a piece of paper and sign it in front of a witness, says divorce lawyer Vanessa Lloyd Platt.

But remember, a court can disregard a cohabitation agreement if it isn’t deemed fair or reasonable.

Not claiming useful marriage allowance

If you and your spouse earn vastly different amounts, you may be able to claim for marriage allowance.

This tax trick allows married couples – where one spouse earns below the £12,570 income tax threshold – to share their allowances. The lower earner can ‘give’ the higher earner, who must be a basic-rate taxpayer, up to £1,260 of their unused personal allowance each year.

This shields a larger portion of the higher earner’s income from taxes, saving as much as £252 a year.

Thinking about your pensions separately

When you’re saving for retirement through your employer and building up various pensions, it may seem easier to keep your savings separate from those belonging to your partner.

But you should think about your pensions together, Coles says. It could save you tens of thousands of pounds, in the long run.

For example, if you give up work or go part-time to look after children, your partner could consider paying into your pension. This way, you’ll still get 20 per cent tax relief on the savings and you are protected for later life in case the relationship goes south.

Or, if you are both working and one of you is a higher taxpayer than the other, you may consider prioritising the higher earner’s contributions. This is because you will benefit from a higher rate of tax relief, which will boost the overall pension pot.

When it comes to retiring, one of the biggest mistakes couples make is opting for a single annuity over a joint one.

Annuities provide a guaranteed income for life and can be taken out individually or as a couple.

Single annuities typically pay higher amounts, but when you die the payments stop.

If you instead take out a joint annuity, then after your death your partner will continue to receive a portion of your income. This might be all or half, for example, depending on the policy you select.

Not making full use of savings allowances

If you are lucky enough to be one of the 1.8 million people who max out their £20,000 individual savings account (Isa) tax-free allowance each year, you could make use of your partner’s allowance, too.

For example, let’s say you’ve saved £20,000 into a cash Isa and you have an extra £5,000 to save. Meanwhile, your partner has only saved £10,000 into their Isa. You can transfer your spare £5,000 into their Isa to shelter it from tax on savings interest.

It means that as a couple you can shield up to £40,000 a year from the taxman in either cash Isas or a stocks and shares equivalent.

If both of your £20,000 tax-free allowances are used up, then consider strategically holding any extra savings in the name of the lower-rate taxpayer.

That’s because they’ll be able to earn more in interest tax-free.

Basic-rate taxpayers can earn up to £1,000 a year in interest before they start paying tax at their marginal rate.

It’s £500 for higher rate taxpayers while additional rate taxpayers have no savings allowance.

This trick also means that if your interest does breach the savings allowance threshold, it will be taxed at a lower rate. Basic-rate taxpayers will pay 22 per cent on interest from April 2027 compared to 42 per cent for higher-rate earners and 47 per cent for additional ones.

The money has to be an outright gift. This means you won’t be able to demand it back if you break up, although in the case of divorce your assets may be considered as jointly owned anyway.

Assets held by the higher taxpayer

Capital gains tax (CGT) was thrust into the spotlight last week as Prime Minister Andy Burnham was reported to be considering raising rates as high as 45 per cent.

But there is one mistake couples make that is costing them money now, regardless of what is announced at the Budget.

CGT is levied on profits when you sell or give away an asset, such as shares, investment properties or artwork. Everyone gets a £3,000 tax-free allowance, but this can be cleverly used to trim your bill.

If you want to sell an asset that has climbed in value by more than £3,000, any gain over this threshold will be liable for CGT.

But you can split some of the asset with your spouse before selling it to make use of their annual exemption as well.

You can even put a shares portfolio or a property into joint names before selling up to use both tax-free allowances in one go, says Alexandra Loydon of financial adviser St James’s Place.

If you transfer the assets between you this can be done tax-free between spouses and civil partners, as long as you live together. When it is transferred, the taxman will treat the asset as if it hasn’t gained or lost any value. For example, say you are selling shares that you bought for £5,000 that are now worth £10,000. Your gain is £5,000, of which £3,000 is tax-free. However, £2,000 will be liable for CGT.

To bring your tax bill to zero, you could transfer half of the shares to your spouse. Then each of you will have £5,000 in shares, a £2,500 gain on their original value. As this is under the £3,000 tax-free threshold, no tax is due.

If both of your tax-free allowances have been used up, you can transfer the shares to the lower- rate taxpayer to soften the blow.

Basic-rate taxpayers must pay CGT at 18 per cent rate, while higher or additional rate taxpayers are charged 24 per cent.

The same trick can be used to trim dividend tax. Basic-rate taxpayers are charged 10.75 per cent compared to 35.75 per cent and 39.35 per cent for higher and additional rate earners respectively.

As with savings, any transfers must be made on a ‘no strings attached’ basis.

Ignoring each other’s attitudes to risk

All investors have a different risk tolerance, but failing to address a mismatch that exists between you and your partner could cost you money if you go along with risky investment ideas to keep the peace.

For example, you may favour slow and steady bonds, while your partner wants to experiment with more volatile single stock investments.

If the investments go awry, you may lose your money as well as your temper. But if you choose a low-risk portfolio, your high-risk partner may resent you as your joint money is not growing as quickly as they’d like.

Haine says: ‘You may have different ideas about what makes a good investment. The trick is to pick something that works for both of you but also to have separate pots that you can have fun with.’

For example, you might choose an index fund for your joint investment. These track the performance of a certain index, such as the S&P 500 in the US or the FTSE All-World, which tracks stock markets around the world.

These are very diversified as they give investors exposure to hundreds of companies. Mixed- asset index funds give exposure to both equities and bonds, which might be the middle ground you need.

Letting one person take control

If one person in a couple is much more savvy with their money, it can be tempting to let them manage household bills, savings and investments.

In fact, almost half of couples rely on one person to handle long-term financial planning, according to wealth manager Quilter.

But Haine warns: ‘Letting someone who is better at managing money take control is all very well. But if you get ill or die, you are leaving your family at a financial disadvantage.’

Your partner may be left without access to key funds at a crucial time because they do not know where your joint money is kept. Similarly, resentments may brew for the partner who is shouldering the responsibility of managing the family money.

She adds: ‘Include your partner in decisions and make sure they know what is going where.’

Deciding not to get married

Marriage isn’t right for everyone, but remaining unmarried can be costly. Not only are you unable to use many of the tax tricks above, you may end up with a higher inheritance tax bill.

Inheritance tax is charged at 40 per cent on an estate above the £325,000 tax-free threshold, known as the nil-rate band.

Those who leave their home to a direct descendant such as a child or grandchild also have an additional £175,000 tax-free allowance.

But if you leave everything to your spouse or civil partner instead, it is passed on completely free of death duties.

Your unused £500,000 in tax-free allowances also passes to them, so they can then leave behind £1million free of IHT.

If you remain unmarried or not in a civil partnership, you can’t use these lucrative IHT tricks, Loydon explains. Less of your savings and wealth will end up going to the people you love – and more of it will fall into the taxman’s clutches.

What money mistakes have you made and learned from? Email money@mailonsunday.co.uk