Proper planning can help you to build a secure financial future for you and your family. Here are some strategies to consider as part of your personal financial plan.
Make full use of your allowances
The basic personal allowance for 2016/17 is set at £11,000. Children also have their own personal allowance, so income up to £11,000 escapes tax this year as long as it does not originate from parental gifts.
If your spouse or partner has little or no income, you might want to consider transferring income (or income-producing assets) to them to ensure that they are able to make full use of their personal allowance. However, please speak to us before taking action as you need to take into account the settlements legislation governing ‘income shifting’.
Certain married couples and civil partners may also be able to make use of the Transferable Tax Allowance. This allows couples to transfer 10% of their personal allowance to their spouse, where neither pays tax at the higher or additional rate.
Preserving your entitlement to Child Benefit
If you have adjusted net income of £50,000 or over and either you or your partner receive Child Benefit, you may have to pay the High Income Child Benefit Charge. 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.
However, it may be possible to reduce or even eliminate the charge by equalising or reducing income between you and your partner, for example by increasing contributions to a registered pension scheme or swapping your cash salary for tax-free benefits, such as childcare vouchers, under a salary sacrifice arrangement.
Tax-efficient savings options
The sooner you can begin saving for your children’s future, the better. Although interest rates have been relatively low over recent years, ISAs can still be a valuable part of the savings portfolio. Up to £15,240 can be invested in an ISA for 2016/17 in any combination of cash or stocks and shares. Junior ISAs are available to all UK-resident children under the age of 18 and allow contributions up to a maximum of £4,080 (2016/17).
Meanwhile, the Help to Buy ISA provides a tax-free savings option for those wishing to save for a first home, with savings of up to £12,000 attracting a 25% bonus from the Government (capped at a maximum of £3,000). Various rules apply.
The new Personal Savings Allowance (PSA), which came into effect in April 2016, allows basic rate taxpayers to earn up to £1,000 each year in tax-free savings income, while higher rate taxpayers can receive up to £500 before paying tax on their savings income.
Skipping a generation
Think carefully about how you wish to pass on your wealth to your family. If your children are grown up and financially secure and your assets pass to them, you might be adding to their estate, and therefore to the inheritance tax (IHT) which will be charged on their deaths. Instead, consider leaving something to your grandchildren, thereby forcing the IHT charge to ‘skip’ a generation.
The importance of your Will
Having contingency plans in place will ensure that your family are provided for if the worst were to happen. A sound ‘living Will’ should outline your wishes, in the event that you become incapacitated or otherwise seriously injured. A Will can also be structured to save tax.
Putting tax-efficient planning steps into place now could help to provide a brighter and more secure future for you and your family. Please contact us today for advice.