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Family Fortunes
(This article appeared in the May 2009 issue of the Dentist)
Our families stand by us through thick and thin…most of the time. Even if
they annoy you at times, at least you can feel better about them knowing that
there is a whole host of tax breaks available for families!
- Just because you are a child (under 18) doesn’t mean you will be exempt
from paying tax. Children get the same personal allowance as their fully-grown
counterparts (currently £6,035 for 08/09) but if they earn any more than this,
will have to pay tax. Unless you are the parent of a young movie star or
brainy whiz kid who is already earning big bucks in the IT sector, chances are
the main income children will have is actually income from investments – such
as bank interest. If they are earning less than £6,035, they should not be
paying tax on any bank interest etc. Generally interest is credited net of
basic rate tax. To ensure your children do not pay tax unnecessarily, complete
form R85 when you open an account in their name. This will ensure that tax is
not deducted at source when it is credited. If you have not done this, you
should be able to reclaim tax suffered by making a claim (form R40).
There is one thing to remember. If you have given your children gifts and
this earns more than £100 per year in interest, this will be taxed as if it is
your own, to stop parents from channelling their wealth to their children to
avoid income tax (as if anyone would do such a thing?!). If you think interest
arising on your gift will exceed £100, put your gifts in a tax free investment
such as a child tax fund or children’s bonus bonds from NS&I. Remember this
£100 limit only applies on gifts from each parent – not other family members,
so perhaps it’s time to have Aunt Marge around for dinner more often.
- Though your child may still be in nappies, another useful planning tool is
to start paying into a pension scheme for them. The downside of course is that
this money becomes locked in until your child reaches the minimum age for
drawing a pension, which is currently 50 but is soon increasing to 55. You can
get tax relief on net payments up to £2,880 a year in 08/09 made into a
stakeholder pension on your child’s behalf. The tax relief on these payments
is made at the rate applicable to your child, as if they had made the
contribution. Remember that ¼ of the fund can be taken tax free, the rest will
be taxed as a pension (as other income).
- If you are married or in a civil partnership, each of you has an annual
capital gains tax exemption (£9,600 in 2008/2009) which you can maximise by
sharing ownership of your assets. For example, if one of you has capital gains
that are likely to exceed your annual allowance, consider splitting the
assets. Transferring assets won’t incur any tax provided that you are married
or in a civil partnership and are living together or in the first year of
separation (so long as you do this correctly, so get advice!) In this manner
you can then double the capital gains tax exemption.
- As long as you are both UK residents, gifts between spouses and civil
partners are free of inheritance tax, and in addition there is no IHT to pay
if your spouse or civil partner dies and leaves something to you (there is no
maximum). If the recipient spouse is domiciled outside the UK, only
gift/legacies up to £55,000 are exempt.
Changes in 2007 now mean that married couples and civil partners can now
transfer their IHT allowance between them. This is calculated by working out
the proportion of nil rate band, which has not been used by the first death,
and multiplying this by the nil rate band in force at the time of the second
death. You’ll be pleased to hear there is no limit on the number of
spouses/civil partners. So, if you have had 7 wives who all died in mysterious
circumstances, you can work out what proportion of nil rate band was unused in
each case. The maximum you can claim however, in addition to your own
is one full nil rate band (though this may be made up of several
spouses/civil partners!)
- If you and your spouse/civil partner have any investments in joint names,
usually you will each pay tax on half the income even if you own it in unequal
shares. Alternatively, if you would prefer to be taxed on the actual
proportion of beneficial interest, if different, you can complete form 17
"Notice of declaration of beneficial interests in joint property and income".
Mac Kotecha (FCA) is a Chartered Accountant and Certified Financial Planner
who deals exclusively with dentists and has been established for over 27 years.
His company offers Accountancy, Taxation & Payroll services in addition to
invaluable advice on practice management, buying/setting up a practice and other
dental issues.
Contact him on 020 8346 0391 or go to www.specialistdentalaccountants.co.uk
to learn more.
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has expanded from single-handed to a six surgery/8 dentist practice."
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available to "pick his brains" and has a solution for any problem!"
"He always
offers sound independent advice on all financial and taxation affairs in a way
that is easy to comprehend and follow."
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ownership."
"There is never anything I do in
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