End of tax year income tax planning for the family

The rationale behind most family tax planning is to ensure that all available exemptions and allowances are utilised and, where possible, shift income into the hands of the spouse where it will be taxed at the lowest possible rate.

Each spouse, and each child, is entitled to their own personal allowance (PA), which for 2017/18 is £11,500. If a spouse has little or no income, consideration should be given to spreading the income more evenly to ensure that each spouse makes full use of each PA. This may involve transferring income producing assets. In the case of gifts of income producing assets to children, unless a child is over 18, income generated by a parental gift is subject to a limit of £100 gross per parent.

Do not overlook the ability for spouses and civil partners to transfer 10% of their PA to the other, where one has income below £11,500, and neither pay tax at the higher or additional rate. This means that £1,150 can be transferred, saving £230 in the current tax year. 

In addition to the personal allowance, new personal dividend and savings tax free allowances have been introduced such that £5,000 of dividend income is tax free for all taxpayers and £1,000 (£500) of savings income is tax free for basic rate taxpayers (higher rate taxpayers). Again couples can make the most of these allowances by transferring income yielding assets between them.

In certain instances, it may be appropriate to reduce taxable income to avoid a high income child benefit tax charge, or the loss of personal allowances. A child benefit charge applies at a rate of 1% of the full child benefit award for each £100 of income between £50,000 and £60,000. Personal allowances are reduced by £1 for every £2 of income above £100,000, which means that income between £100,000 and £123,000 is effectively being taxed at 60%.Strategies to reduce your income may include increasing contributions into a pension scheme or making charitable donations via Gift Aid.

When considering transferring income or income producing assets between family members, any transfer needs to be an outright gift with ‘no strings attached’, otherwise it could be subject to attack by HMRC. Professional advice is recommended when contemplating gifts of assets to consider both this aspect, and any capital gains tax consequences, which may apply to certain gifts.

It’s worth talking to your accountant if you wish to discuss tax planning issues. If you need tax advice, whether it is personal or business, contact one of our specialists by calling 0115 955 5500 or email enquiries@pagekirk.co.uk.