From 2024/25, the income tax charge applies at a rate of 1% of the full Child Benefit award for each £200 of income between £60,000 and £80,000. The charge on taxpayers with income of £80,000 or above will be equal to the amount of Child Benefit paid. Child Benefit claimants are able to 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. Example Phil and Jane have two children and receive £2,213 Child Benefit. Jane has little income. Phil expects his adjusted net income to be £70,000. On this basis the tax charge will be £1,107. This is calculated as £2,213 x 50% (£70,000 - £60,000 = £10,000/£200 x 1%). If Phil can reduce his income by £10,000 to £60,000 no charge would arise. This could be achieved by transferring investments to Jane or by making additional pension or Gift Aid payments. Tax-Free Childcare The scheme is available to families where all parents are working (on an employed or self-employed basis) 16 hours a week and meet a minimum income level (generally £183 a week for over 21 year olds) with each earning less than £100,000 a year. Parents who are receiving support through Tax Credits or Universal Credit are not eligible. Parents need to register with the government and open an online account. The government ‘top up’
payments into this account at a rate of 20p for every 80p that families pay in. The scheme is generally limited to £10,000 per child per year. The government’s contribution is therefore a maximum of £2,000 per child. Employer Supported Childcare closed to new entrants on 4 October 2018. Parents who qualify for both schemes are able to choose which scheme they wish to use but families cannot benefit from both schemes at the same time. 15/30 hours childcare In addition, qualifying families will be entitled to free childcare. Families can receive up to 30 hours of free childcare for three and four year olds. From April 2024, there is an additional 15 hours of free childcare for two year olds. In September 2024, this 15 hours will be available for children aged nine months or over. The free childcare is available over 38 weeks and can be used flexibly with one or more childcare providers. To find out about all childcare options click here . What about unmarried partners? It still pays to equalise income as much as possible, as income tax will be minimised. However, transfers of assets may be liable to CGT and, if substantial, could also lead to an IHT liability. It is vital for unmarried couples to each make a Will if they wish to benefit from each other’s estate at death. A word of warning Transferring assets or interests in a business between spouses may attract the interest of HMRC especially where it is obvious that it has been done primarily for tax
saving purposes. Transfer of ownership of an asset must be real and complete, with no right of return and no right to the income on the asset given up. If a non-working spouse is given shares in an otherwise one-person, private company, HMRC may, in some circumstances, seek to tax the working spouse on all of the dividends under what is known as the ‘settlements legislation’. You may want to consider obtaining advice from us before entering into this type of arrangement.
Family Matters
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