Year end strategies Part 3: Family tax planning
When planning to minimise taxes, you should consider the importance of the whole family in helping to achieve your financial goals. In this post, we explore how family tax planning can work for you as we move closer to the April year end deadline.
Maximising personal allowances: Each spouse is entitled to their own personal allowance (PA), which for 2017/18 is £11,500. Therefore, if your spouse or partner has little or no income, so when considering your family tax planning, you might want to consider spreading your income more evenly to make sure you make full use of each PA. This may involve transferring income of income-producing assets, but be mindful of the settlements legislation concerning “income-shifting”. Any transfer must be an outright gift with “no strings attached”.
Certain married couples may also be eligible to transfer 10% of their PA to their spouse. The Marriage Allowance is available to married couples and civil partners where one earns no more that £11,500 and neither pays tax at the higher or additional rate. It means £1,150 can be transferred in 2017/18, reducing a couple’s tax liability by up to £230 in the current year.
And don’t forget, children are also entitled to their own PA. However, income generated by parental gifts is subject to a limit of £100 (gross) per parent, unless the child has reached 18 or has married.
Reducing taxable income: In some cases it might be appropriate to consider strategies to reduce your taxable income, for example by increasing contributions into a pension scheme or making charitable contributions via Gift Aid. This may be beneficial if you or your spouse or partner are receiving Child Benefit, and either of your incomes are expected to be £50,000 or £60,000. Reducing income to below this level may help to eliminate the High Income Child benefit Tax Charge, which applies at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. You might also want to consider adopting a similar strategy if your income is just above £100,000 as the PA is reduced by £1 for every £2 of income over this figure.
For further information on tax planning across the family, get in touch with our team of friendly accounts professionals.
This post is for guidance only, and professional advice should be taken before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of the publication.