Example A buy to let property is owned three quarters by Helen and one quarter by her husband Mark. If no election is made the net rental income on which tax is payable will be split 50:50. If an election ismade the income will be split 75:25. A choice can bemade according to which is themost desirable when other income of the spouses is taken into account. Capital gains tax Independent taxation also applies to CGT. Each spouse is entitled to take advantage of the annual exemption of £12,300 before any CGT has to be paid. This is advantageous where assets are held jointly and then sold as each spouse can use their annual exemption to save tax. The transfer of assets between spouses is neutral for CGT. This is sometimes done shortly before assets are sold, to minimise tax. Advice should be sought before undertaking such transactions to ensure that all tax aspects have been considered. Please contact us for CGT advice. Children It is often assumed that children are not taxpayers. In fact HMRC will tax a child just as readily as anyone else if the child has sufficient income to make them liable. Transferring income to children Children have their own personal allowances and tax bands. Where their only income is, at best, a
few pounds from a paper round or a Saturday job, there may be some scope for transferring income producing assets to the children to use up their personal allowance. However, such assets should not be provided by a parent, otherwise the income remains taxable on the parent, unless it does not exceed £100 (gross) each tax year. Tax Planning There is nothing to stop you employing your children in the family business so as to take advantage of their personal allowance. There are age restrictions (with some exceptions theminimumage is generally 13 years old) and legal limitations as to the type and duration of the work. It is also essential that payment is onlymade for actual work carried out for the business and at a reasonable commercial rate. Children and capital gains Children also have their own annual exemption for CGT, so assets transferred to them which have a bias towards capital growth rather than income may prove to be more advantageous. Child Trust Funds (CTFs) The availability of new CTFs ceased from January 2011, as did government contributions to the accounts. Existing CTFs however continue to benefit from tax free investment growth. No withdrawals are possible until the child reaches age 18. However, the child’s friends and family are able to contribute up to the annual limit of £9,000. It is possible to transfer the investment to a Junior Individual Savings Account (ISA).
CTFs started to mature from September 2020 when the first eligible children began to turn 18. On maturity funds can be either withdrawn or left in the tax advantaged CTF account pending instructions from the account holder. Alternatively the savings can be transferred to an ISA and the amount transferred will be disregarded for the annual ISA subscription limit. Junior ISA A Junior ISA is available for UK resident children under the age of 18 who do not have a CTF account. Junior ISAs are tax advantaged and have many features in common with existing ISAs. They are available as cash or stocks and shares based products but a child can only have one cash Junior ISA and one stocks and shares Junior ISA. The annual investment is limited to £9,000. Tax Planning There are some other limited ways income can be transferred to children tax efficiently such as: National Savings Children’s Bonds which are tax free. Friendly Societies offer 10-year minimum, tax exempt savings plans for children for up to £25 per month. 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.
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Family Matters
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