3 important financial considerations people in the LGBTQ+ need to consider

As June is the month of Pride, which celebrates acceptance and progress for people in the community, it is important to recognise the progress Britain has made towards equality. That said, it’s also important to understand that there is still some way to go.

One area that LBGTQ+ folk may be worse off is with their finances. While the online accountancy software company, Crunch, revealed that the LBGTQ+ community contributes an estimated £6 billion to the UK economy every year.

It also suggests that many in the LBGTQ+ community could be worse off financially. One reason for this, for example, could be that many gay men work in industries that are dominated by females, and as such, not as well paid.

Whether wealthy or not, those who identify as LBGTQ+ are more likely to face common financial challenges. The good news is that working with a financial adviser could help overcome them and allow LBGTQ+ people get more from their wealth.

With this in mind, read on to discover three financial challenges facing this community, and how a financial adviser could help.

1. A civil partnership could help you to access tax breaks

According to the Office for National Statistic’s, in 2021and 2022, LGBTQ+ couples were less likely to enter into a civil partnership than heterosexual couples are to marry.  Assuming that this could still be the case today, this could create challenges for LGBTQ+ couples who are cohabiting.

This is because they won’t normally enjoy the same tax benefits as married couples or those in a civil partnership. For example, if you’re in a civil partnership, you may be eligible for the Marriage Allowance, which allows you to transfer a proportion of your personal allowance to your husband or wife, or vice versa.

Your personal allowance is the amount you’re allowed to earn before becoming liable to Income Tax, and in 2024/25 is £12,570. This means you or your civil partner would be able to boost the other’s allowance by up to £1,260, which in turn could reduce the amount of Income Tax you, or they, pay.

Additionally, if you’re in civil partnership, you’re also able to transfer assets between you and your husband or wife. This could reduce your household’s exposure to Capital Gains Tax (CGT), which is charged on any profit you make on assets, such as property that isn’t your home and certain investments.

Depending on the asset being sold and your marginal tax rate, CGT is charged normally at a rate between 10-28%. While you can earn a certain amount of profit before the tax is charged, this allowance was slashed to £3,000 April 2024, which could increase your exposure to the tax.

Being able to transfer ownership to your civil partner, however, could allow you to effectively double your household’s CGT allowance to £6,000. This in turn could significantly reduce your liability to the tax.

With this in mind, a financial adviser could help you understand if, as a cohabiting couple, you might be able to reduce your exposure to Income Tax or CGT, and improve your tax-efficiency.

2. Support to make your pension work for you could mean a better retirement

An article by The Guardian in 2023 makes for startling reading, as it reveals that more than four in every 10 in the LBGTQ+ community are likely to struggle financially when they retire. The feature highlights research that found 44% of those who identify as LBGTQ+ are not on track to generate a retirement income that will provide a minimum standard of living as defined by the Pensions and Lifetime Savings Association.

This means that their pension income is unlikely to cover the cost of basics such as food and heating. One reason for the staggering statistic could be that 36% of LGBTQ+ people are not a member of a pension scheme.

Speaking to a financial adviser could help you plan for your dream retirement and create a financial strategy that will enable you to enjoy the lifestyle you want when your finish working.

3. Estate planning could ensure your future wishes are protected

If you’ve not entered a civil partnership, it's important to ensure your estate will be passed to your partner if you die. While you might assume your wealth will go to them if the worst happens to you, in reality, they may not receive anything.

Without a will that names your partner as the beneficiary, your wealth could go to someone else, even if your loved one is dependent on you financially. This is because without a will in place, your estate will be deemed as ‘intestate’.

When this happens your estate is distributed in line with strict guidelines that prioritise certain relatives above others. Worse still, the distribution process doesn’t include partners, even if you’ve been living with them for many years.

This is why creating a will that leaves your wealth to your loved one is something you should consider doing as soon as possible. Likewise, if you have a pension you should ensure your partner is named on your ‘expression of wishes’ form, as this decides who will receive your pension if you pass away.

As AFH’s independent financial advisers are qualified estate planners, they can help you to create a will. This could then provide you with peace of mind that your partner will be financially secure no matter what happens to you.

Get in touch

These financial challenges facing the LGBTQ+ community, while representing a disadvantage to those who identify, can be mitigated to help you and your family get the most from your wealth. Our advisers can help you to understand how you could secure your retirement and financial future in a tax-efficient way. As one of the UK’s leading independent financial advice companies, AFH is proud to support clients from every background representing all communities.

Please call us on 01527 577775 or speak to one of our advisers, as we’d be happy to help.


Thursday 27 June 2024