Common questions when planning your finances
We’ve collected together some of the most useful advice around planning your financial future into the sections below.
Getting married or living together
There’s no such thing as common law marriage. Even if you’ve lived together for years, you’re treated in the eyes of the law as two separate people. Your rights if you split up are very limited.
Yes. Most married couples own their homes as joint tenants. That means if your spouse dies, you automatically inherit their share of the property and there’s no Inheritance Tax to pay.
If you buy a property as tenants in common, each party owns a share of the property and you can specify what those shares are. If one of you dies, your share goes to whoever you have left it to in your will.
Yes. You won’t be able to inherit from each other unless you make wills. Without a will the intestacy rules apply. Anything you own in your sole name and your share of anything you own as tenants in common will go to your relatives, not your partner.
Possibly, yes. If you’ve taken out any credit or accounts in joint names or have any joint judgments, you’ll be treated as being financially connected. So when you apply for credit, the lender will be able to see and take your partner’s credit information into account.
Starting a family
They’re likely to be turned on their head! As well as a seemingly endless list of things to buy for the baby, you may also need to pay for childcare, take out life insurance, buy a bigger car etc. You may also find your income shrinks if you decide to take time off work to look after your children. To get an idea of how your finances might change, draw up a budget of how your future income and spending might look.
If you work you can take up to 52 weeks' maternity leave regardless of how long you’ve worked for your employer. Statutory Maternity Pay (SMP) is available if you’ve worked for your employer continuously for at least 26 weeks and is paid for up to 39 weeks. Your employer may offer more.
If you don't qualify for SMP you may be able to claim Maternity Allowance. New fathers may also be entitled to Statutory Paternity Pay if they take two weeks off work when their baby arrives. To find out more visit Gov.uk.
Child Benefit is probably the best known state benefit for families. If you’re on a low income you may be entitled to Working Tax Credit which may include help towards your childcare costs and you may also qualify for Child Tax Credit. This is gradually being replaced by Universal Credit. There are also disability allowances for children.
Your employer may help with the cost of childcare either by providing care, paying some of your costs or offering childcare vouchers which have tax advantages.
Saving for school and university costs
The earlier the better.
If you’ll need the money in five years or less, a possible option is a savings account.
If you can save for longer, you could consider investing in the stock market. Investments have the potential to do better than savings over the longer term. However, this is a more risky strategy and you may get back less than you invest.
Whichever way you choose, you could consider tax-free savings and investments such as Individual Savings Accounts (ISAs).
There will be tuition fees (up to £9,000 a year) and living expenses which may include rent, bills and food if they live away from home.
English full-time students can apply for tuition fee and maintenance loans and these don’t have to be repaid until they start work. Maintenance grants may be available for students from lower-income households and this money does not have to be repaid. Different rules apply in Scotland and Wales. To find out more visit Gov.uk.
Fees vary enormously but averaged around £3,835 a term at day schools in 2013, according to the Independent Schools Council. Boarders paid an average of £9,204 a term.
There may also be additional charges such as for meals, after-school clubs, school trips and public exam entrance fees.
Work and redundancy
If you’ve worked for your employer for at least two years, you’re usually entitled to statutory redundancy pay. You get:
- half a week’s pay for each full year you were under 22
- 1 week’s pay for each full year you were aged 22 to 40
- 1 and half week’s pay for each full year you were 41 or older.
There are limits on the amount you get. The redundancy pay calculator at Gov.uk can help you work out much you’re entitled to.
You won’t get redundancy pay if your employer offers to keep you on in a suitable alternative job or you’re sacked for misconduct.
You can usually claim Jobseeker’s Allowance and you may be entitled to help with the cost of your housing and Council Tax. To find out more about state benefits visit Gov.uk.
If you’re worried, draw up a budget to see how your spending might change if you lost your job. If you don’t think you’d be able to manage on any redundancy pay, benefits or savings you have, you could consider taking out insurance. This can cover particular expenses, such as your mortgage, if you lose your job.
Separation and divorce
Gather all the information you can on what you have and what you owe. Make a list of your assets, such as any property or savings you have (whether they're in joint or sole names), your income, outgoings and debts. If possible, draw up a financial history including your position before marriage (or civil partnership).
This will help ensure you negotiate from a position of knowledge. Also, if you plan to engage a solicitor the more information you can provide the better.
The Money Advice Service has a helpful divorce* and separation calculator.
*We use the term ‘divorce’ to mean the end of either a civil partnership or a marriage.
If you have joint debts such as a personal loan or overdraft, you’ll probably both be liable for these. Even if your ex-partner normally makes the repayments, it’s important to check this is happening. If he or she misses a payment, the lender can demand you make the repayment and your credit record could be damaged.
If you’re going through a separation or getting divorced*, it’s a good idea to review your will if you have one.
If you don’t have a will, everything you own when you die will pass according to the rules of intestacy. Until you’re divorced, your ex-partner will still inherit from you under those rules.
*We use the term ‘divorce’ to mean the end of either a civil partnership or a marriage.
There’s no set formula. If you can come to an agreement yourselves, either with or without the help of a solicitor or mediator, that’s the best option.
If you end up going to court, the court has huge discretion and will seek to achieve fairness. It aims for a ‘clean break’ where you won’t be left with any financial obligations to each other (other than to provide support for your children).
Generally the starting point is a 50:50 split, but this can be adjusted if it doesn’t achieve a fair result.
Preparing for retirement
Your income in retirement is likely to come from a state pension, any other pensions you’ve paid into as well as any savings and investments.
To find out how much state pension you might get, order a state pension statement from Gov.uk or phone 0345 3000 168. Check your recent workplace and personal pension statements to see how much you could be on track to receive from them.
It’s a good idea to draw up a budget as if you had already reached retirement. This will help you work out how much you’ll need to live on.
Generally, yes. By 2018 all employers will have to automatically enrol most of their employees into a pension and pay into it on your behalf. You can opt out if you want to, but you’ll be losing out on your employer’s contributions, which is like turning down a pay rise.
You’ll only be affected if you retire on or after 6 April 2016.
If you are affected you won’t lose any state pension entitlement you’ve built up under the current rules, but you could end up with less than you had expected if the current system had continued. Some people, however, will be better off.
Inheritance and death
You could set up a Lasting Power of Attorney. This is a legal document where you appoint a person you trust (called an attorney) to make decisions for you and to act on your behalf. This could involve taking care of your money, your property, your welfare or your health.
You can specify what powers you want to give your attorney and when they can start making decisions for you.
To find out more visit the Gov.uk power of attorney website.
A will ensures your property, possessions and money (known as your estate) go to the people you want them to and allows you to appoint guardians for your children, if necessary. It also avoids any uncertainty, unnecessary expense and long legal delays that can occur if you don't write a will.
Without a will, your estate will be split according to the rules of intestacy. These rules can cause problems. For example, your assets may have to be sold so your estate can be split between your heirs. This could mean your partner is forced to move out of your family home.
Inheritance tax (IHT) is paid when your estate (that’s everything you leave behind, including your property, possessions and money) is worth more than £325,000* when you die.
But in fact most estates don’t pay any IHT at all. That’s because there are a number of allowances and exemptions which reduce or eliminate it altogether.
If you’re worried about leaving behind an IHT bill, speak to a solicitor, accountant or financial adviser to discuss your options.
(*2014–15 tax year)
The easiest way is to write a will. This means you can control who inherits from you and you can make gifts that could save inheritance tax (IHT).
There are other things you can do too. One is to consider writing any life insurance you have ‘in trust’. This means the payout on death will be free of IHT.