Income Tax Planning & Advisory

Another hidden high tax rate

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.

The income tax charge applies at a rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. The charge on taxpayers with income above £60,000 will be equal to the amount of Child Benefit paid.

Claimants may 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.

Cap on reliefs

There is a 'cap' on certain otherwise unlimited tax reliefs (excluding charitable donations) of the greater of £50,000 and 25% of your income. This cap applies to relief for trading losses and certain types of qualifying interest.

Assisting your children financially

University is an expensive prospect these days, and beyond this lies the challenge of finding a deposit for a home. The sooner you start planning for these expenses, the better.

All children have their own personal allowance, so income up to the tax free limit escapes tax every year, as long as it does not originate from parental gifts. If income from parental gifts exceeds £100 (gross), the parent is taxed on it unless the child has reached 18, or married. Consequently parental gifts should perhaps be invested to produce tax-free income, or in a cash or stocks and shares Junior Individual Savings Account (JISA).

For younger family members, the JISA offers the opportunity for parents and other family members to build a fund to help offset university expenses and minimise debt at the start of the child's working life. The £100 limit does not apply to gifts into JISAs or National Savings Children's Bonds. From April 2015 pre-existing Child Trust Funds can be converted to JISAs.

The Government has also announced the introduction of a new Help to Buy ISA, which will provide a tax-free savings account for first time buyers wishing to save for a home: please see the 'Savings and investment strategies' section.

Generation Skipping

If your child is grown up and financially secure, it may be worth 'skipping' a generation as income from capital gifted by grandparents or more remote relatives will usually be taxed as the child's, as will income distributions from a trust funded by such capital.

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