Contents
Don't leave it to chance
Family tax planning
Tax payback - tax credits
Pay rise for the other half?
Jam today, or jam tomorrow?
Pension payments and tax relief
Employee pensions
Children's pensions?
Borrowings and tax
Investment limits
Employee cars and fuel
Give generously and save tax
Capital gains
Capital losses
Second homes
Company or trade?
Inheritance tax
Children's savings?
Business tax
Two jobs = too much NIC?
Should VAT be flat?
Mutiny and bounty
One careful owner
A matter of trust
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Everyone has tax allowances - the "personal allowance" of tax-free income (£4,745 in 2004/05), and the lower rates of tax which apply to the first £31,400 of taxable income. If you are an employee paying the top rate (40%), the personal allowance and lower rates are worth nearly £7,800 in tax saved. On savings income, which is taxed at slightly different rates, you can save nearly £9,000. The problem is that not everyone is able to use their allowances in full. In a family where one partner goes out to work and the other raises the children, the carer (and the children) don't have much income. If the "breadwinner" is a higher rate taxpayer, this is a waste. Take two couples. In one, each partner has a total taxable income, all of it salary, of about £40,000. They will pay about £11,250 in tax and National Insurance Contributions each, £22,500 in total. That's just over 28% of their combined income of £80,000. In the other couple, one partner has an income (all salary) of £80,000, and the other has none. The earner will pay about £27,650 in tax and NIC - nearly 25% more than the couple who can split their income. It is not always easy to transfer income between husband and wife in order to take advantage of allowances, but the following methods are possible: - an outright gift of savings and investments which produce taxable income; - putting savings and investments into joint names and sharing the income; - employing the spouse in a business; - taking the spouse into partnership in a business. Although the most substantial saving (nearly £9,000 a year) requires a transfer of £36,145 of savings and dividend income from a very rich spouse to one who has no income, reasonable savings can be achieved on much smaller transfers. If a higher rate taxpayer is married to a spouse with income below the personal allowance, a transfer of just £1,000 of taxable income will save £400 a year. Capital gains are much easier to transfer for tax purposes, so if you are likely to realise a gain above your annual exemption, you could transfer the asset to your spouse first and save a fair amount of tax.
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© Bayar Hughes & Co., 2010.