Chartered Management Accountants | Milton Keynes
|Here’s where we can advise|
Key financial planning goals include:
Remember that all tax planning must:
We can help you to create opportunities to reduce your marginal tax rates by careful identification of appropriate strategies.
|Situation||Possible strategy||Possible result|
|Income from assets taxed at 40%/45%*||Transfer to spouse if he/she pays tax at lower rates
Transfer into joint names
|Tax @ 40%/45% reduced to 20% or less
Half of income taxed at 20% or less
|Proposed sale will give sizeable capital gain||Transfer to spouse if he/she can use his/her annual CGT exemption or
spouse has unused CGT losses
Transfer into joint names
Defer sale of 50% until after the end of the tax year
|Additional £12,000 (maximum) of gain tax-free
Cover part or all of gain with losses
Double exemptions and deferring some tax by 12 months
|One spouse rich in assets – wish to make gifts within CGT and IHT limits||Transfer to the other spouse, who can then make gifts in parallel||Double exemptions|
* Rates of tax and the higher-rate threshold in Scotland are different to those elsewhere in the UK. There is a starting rate of 19% applying to the first £2,050 of taxable income, then the UK basic rate applies up to total income of £24,945, above which a rate of 21% applies. The higher rate, which applies from total income over £43,430, is 41% and the additional rate on income over £150,000 is 46%. This makes tax planning more challenging, but slightly more beneficial when dealing with Scottish taxpayers.
Gifts must be outright to be effective for tax, and must not comprise a right only to income.
Transfers on or within seven years of death to a spouse domiciled outside the UK are exempt only to the extent of £325,000 plus the exemption in respect of the residence nil-rate band (£150,000 per individual up to and including the current tax year).
For younger children, ongoing payments into a Junior ISA may create the opportunity for parents, grandparents and other family members to build a fund to help offset university expenses and minimise debt at the start of your child’s working life.
Remember that all children have their own personal allowances meaning that their income up to £12,500 escapes tax this year provided the capital does not originate from parental gifts.
If income arising on parental gifts exceeds £100, the parent is taxed on it unless the child has reached 18, or is married. Thus parental gifts in excess of, roughly, £10,000 (assuming an interest rate of 1%) in total should perhaps be invested in something which produces tax-free income, or which accumulate income, or in a Junior ISA. The £100 limit on income does not apply to income on gifts into a National Savings Children’s Bonus Bond.
Income from capital gifted by grandparents or other relatives is taxed as the child’s, as will income distributions from a trust funded by such capital.
Tax relief worth up to £345 this year is given on maintenance paid to a former spouse under orders or enforceable agreements, so long as at least one of the former parties to the marriage was born before 6 April 1935. Otherwise, maintenance payments do not qualify for tax relief. Maintenance payments received under orders or agreements are not taxable.
The special CGT/IHT treatment for transfers between spouses applies throughout the tax year in which separation occurs. Transfers in subsequent years are dealt with under the rules for disposals between connected persons, with the disposal treated as a sale at market value until the date of decree absolute, after which former spouses are no longer regarded as connected.
There are, therefore, arguments for and against making transfers as quickly as possible after separation, or for delaying them until after the decree absolute. Contact us if you are not sure which course to take.
In particular, the potential tax burden on the disposal of the former marital home as a result of separation and divorce can be significant, and may be something about which you need specific advice.
How would your spouse and children manage if you died or were incapacitated tomorrow?
Beyond taking the obvious step of ensuring you have adequate insurance cover, with life assurance written into trust for your spouse or children to ensure quick access to funds, you need to make a Will. Despite repeated campaigns, it is believed that three-quarters of adults still do not have an up-to-date Will. If you die without a Will, the law determines who receives your estate.
We would also strongly recommend that you:
Of course all this also applies for your spouse, and to those who are in civil partnerships. You should also consider the possibility that both parents may be simultaneously killed or incapacitated.
Tips to consider when writing a Will
It is also advisable to tell your family members whenever you change your Will. Should you tell them what assets you have and how they can be located?
We will address some crucial points on this guide, such as the taxes that need to be paid by landlords and tax-effective property ownership.
We share with you the top tips and tricks to ensure that filing the annual self-assessment form becomes as stress-free for you as possible!