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Kirk Rice Blog

Family Tax Breaks – Your Questions AnsweredWritten on October 23, 2018 by Kirk Rice LLP

Family Tax Breaks – Your Questions Answered

Despite there being limited tax breaks for married couples nowadays, there remain a few areas where the family can benefit from tax efficiencies. In this article, we look at the tax breaks available.

In this article, we look at the family tax breaks available.

Income

Married couples that are taxed on their individual incomes are entitled to their own tax-free personal allowance and tax rate band. From a tax perspective where possible, it is preferable to arrange your own income sources in order to fully utilise each spouse’s allowance and lower rate tax bands.

If a personal allowance is unused it is now possible for married couples to elect for part of the allowance to be transferred to their spouse. This came into effect on 6th April 2015 and allows you to transfer 10% of the personal allowance over to your spouse, provided both of you are basic rate taxpayers. For 2018/19 the personal allowance is £11,850 and the amount being transferred will equal £1,190. As a 20% basic rate taxpayer this amounts to £238, therefore, it is worth taking into consideration otherwise this money would be lost. A formal election must be made online by the person giving the allowance. The additional sum is either given as an extra allowance in the PAYE tax code or will be made via a tax return if the beneficiary is self-employed. (For more information, see the Government guide.)

Investments

Couples who hold assets and investments in joint names are deemed by HMRC to hold these assets in equal names and receive the income from these investments 50/50. In most situations, this is the case however if couples do hold their investment assets in unequal shares it is possible to make an election so that the income is taxed in the actual proportion that they own them. This is a formal election and cannot be backdated, so advanced planning is necessary for this form of taxation to be effective.

Capital Gains Tax

Each individual is entitled to their own Capital Gains Tax allowance which for the current tax year 2018/19 is £11,700.  (See HMRC guide for more details). Married couples can transfer assets that they have between each other without this being treated as a sale and triggering any Capital Gains or Inheritance tax issues.

There are two main tax rates with Capital Gains Tax, which one you pay is dependent on your income levels. With forward planning, there is scope to reduce the tax liability.

Tax Implications If You Have Children

Child benefit is a valuable tax-free benefit for families and can amount to about £1800/year for a family with two children. For families with young children still in education, their income levels will affect the amount of child benefit they can receive. If both partners are working they can continue to claim child benefit providing their individual income (this includes all sources of income) is below £50,000/year. If either partner’s earnings exceed £50,000/year, then the child benefit is restricted by 1% for every £100 earned over the £50k limit. This means that by the time your earnings reach £60,000 your child benefit is retracted in full.

If you are sure that your income exceeds the limit it is possible to opt out of receiving the benefits. For families that are in between the two limits, a tax return will need to be submitted at the end of the tax year in order that the correct re-calculation can be made.

It is worth bearing in mind that it is important to register a claim with HMRC by the mother of the child soon after birth of each child, even if the child benefit isn’t going to be claimed.   If a mother decides to stay at home and look after their children they are able to claim National Insurance Credits. This will ensure that their state pensions aren’t adversely affected.  For more information on child benefit see this Government guide.

Children are also entitled to their own tax free allowances, however if parents do pass assets to the children, which give an income of over £100/year, the parent will be liable for the income.

To summarise, there are tax thresholds which can trigger higher tax liabilities. The key consideration is to make full use of your personal allowance of £11,850 per tax year and to fully utilise the basic rate tax band of £34,500.

Investment incomes trigger specific rates and allowances. If you receive dividends from shares or interest on savings you should look at your finances to ensure you do not pay more tax than you need to.

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Any reader interested in understanding more about family tax breaks, should telephone Viru Patel in our Ascot office on 01344 875 000 or Hadley Baldock in our Putney office on 0208 789 8588 or email info@kirkrice.co.uk.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. Information is correct at the time of publishing but details may have changed since.

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