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Personal and family financial strategies
Looking to the future
It is likely that you will have a range of different financial requirements and goals. You might be looking to maximise your wealth so that you can enjoy more of your hard-earned money now and during retirement. You may need to pay for your children’s education, or to help support ageing parents. As your accountants, we can suggest practical ways to help make your objectives become reality.
Using allowances and exemptions
Each individual within your family is taxed separately, and is entitled to his or her own allowances and exemptions. The personal allowance (PA) is set at £12,570 for 2021/22, while the capital gains tax (CGT) annual exemption is £12,300.
By using the available PAs and gains exemptions, a couple
and their two children could have income and gains of at least £99,480 tax-free, and income up to £201,080 before paying any higher rate tax. Through careful tax planning, we can help you and your family to benefit from more of your wealth.
Your tax planning objectives should include taking advantage of tax-free opportunities; keeping marginal tax rates as low as possible; and maintaining a spread between income and capital.
The Marriage Allowance
Some married couples and civil partners are eligible for the Marriage Allowance, enabling spouses to transfer a fixed amount of their PA to their partner. The option is available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their PA
to the other partner (£1,260 for the 2021/22 tax year). For those couples where one person does not use all of their PA, the benefit will be up to £252 (20% of £1,260).
Transferring assets
Planning can be hindered by the potential for tax charges to arise when assets are moved between members of the family. Most gifts are potentially taxable as if they were disposals at market value, with a resulting exposure to CGT and inheritance tax (IHT). However, special rules govern the transfer of assets between spouses. In many cases, for both CGT and IHT there is no tax charge, but there are some exceptions – please contact us for further advice. In addition, gifts must be outright to be effective for tax, and must not comprise a right only to income. Careful timing and advance discussion with us are essential.
High Income Child Benefit Charge
A charge arises on a taxpayer who has adjusted net income over £50,000 in a tax year where either they or their partner are in receipt of Child Benefit for the year. Where both partners have adjusted net income in excess of £50,000, the charge applies to the partner with the higher income.
The income tax charge applies at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid. Claimants may elect not to receive Child Benefit if they or their partner do not wish to pay the charge. Equalising income can help to reduce the charge for some families.
Case Study
Dave and Leanne have two children and receive £1,828 Child Benefit for 2021/22. Leanne has little income. Dave expects his adjusted net income to be £55,000. On this basis the
tax charge will be £914. This is calculated as £1,828 x 50% (£55,000 - £50,000 = £5,000/£100 x 1%).
If Dave can reduce his income by a further £5,000 to £50,000 no charge would arise. This could be achieved by transferring investments to Leanne or by making additional pension or Gift Aid payments.
Cap on reliefs
There is a ‘cap’ on certain otherwise unlimited tax reliefs (excluding charitable donations) of the greater of £50,000 and 25% of your income. This cap applies to relief for trading losses and certain types of qualifying interest.
Giving your children a good start
Funding university degrees and saving up a deposit for a first home are increasingly expensive prospects, so the sooner you start planning, the better. All children have their own PA, so income up to £12,570 escapes tax this year, as long as it does not originate from parental gifts. If income from parental gifts exceeds £100 (gross), the parent is taxed on it, unless the child has reached 18, or has married. Parental gifts could be invested to produce tax-free income, or in a Cash or Stocks and Shares Junior Individual Savings Account (Junior ISA) to build a fund to help offset university expenses and minimise debts. The £100 limit does not apply to gifts into JISAs or National Savings Children’s Bonds.
Childcare scheme
The government’s Tax-Free Childcare (TFC) scheme operates via an online childcare account. Under the TFC scheme,
relief is given at 20% of the costs of childcare, up to a total childcare cost of £10,000 per child per year. The scheme is worth a maximum of £2,000 per child (£4,000 for a disabled child). All children under 12 years old are eligible (or up to 17 for children with disabilities), but parents must meet certain eligibility criteria.
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