Saving family tax
This article describes various ways to save family tax.
Transfer of assets
If you pay tax at the higher rate of 40% and your spouse pays tax at a lower rate or doesn't pay tax, you could save tax by transferring assets between you. This would move part of the income taxed at the higher rate to be taxed at a lower rate or possibly not taxed at all (e.g. if there are unused personal allowances to set against the income). For 2007/2008 both spouses can earn £5,225 before paying income tax.
There must be an actual transfer of the asset(s) involved from one spouse to the other in order to qualify. If you do not want to transfer the full amount of the asset to your spouse you could always transfer part of the asset or put it into joint names.
The transfer of assets between spouses is exempt from capital gains tax and inheritance tax. (For 2007/2008 both spouses can realise capital gains of £9,200 before paying capital gains tax.)
Married couples allowance
Married couples aged between 65-74 are entitled to an allowance of £6,285, and those aged over 75 are entitled to £6,365 for 2007/2008, where either spouse was born before 5 April 1935. You can also transfer any unused allowance to your spouse.
Transfer of allowances
If there is insufficient income to fully utilise the married couples allowance (for those aged 65 or more) or the blind person's allowance, the surplus allowance may be transferred between spouses.
Pay your spouse
If your spouse helps you with your business, you can pay them a reasonable amount for the work they do. Regard should be given to the tax and National Insurance limits as both may be payable, depending on the amount paid. For 2007/2008, if their salary reaches £100 per week, they would pay National Insurance. If you pay £100 a week or more you will also have to pay employer's NI.
Children's personal allowance
All children, regardless of age, are entitled to their own personal tax allowance and capital gains tax exemption. Any income of the child below the personal allowance (£5,225 for 2007/2008) will not have income tax deducted from it.
There are rules in place to avoid parents transferring part of their own income to their children to avoid paying tax at a higher rate. If a parent gives the child capital and the income from that is below £100 per year, the income will be treated as the child's and will not be taxable. If the income is over £100 per year the income will be taxable on the parent.
If money is given to the child from a grandparent or other relative then any income will be treated as being that of the child. This is a very complicated area and a tax adviser should be consulted before any action is taken.
Tax credits
Anyone with dependent children may be able to claim child tax credit and working tax credit. For more information, refer to the tax credits section.
This page was last reviewed on 03 April 2006. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
