In this, Part 3, of a series of blogs about taxation of the family I have highlighted below some points which parents should be aware of about the taxation of and reliefs for children.
- Use of allowances and lower rate tax bands
It may be possible for tax savings to be achieved by the transfer of income producing assets to a child so as to take advantage of the child's personal allowance.
This cannot be done by the parent if the annual income arising is above £100. The income will still be taxed on the parent. However, transfers of income producing assets by others (eg grandparents) will be effective.
A parent can however allow a child to use any entitlement to the CGT annual exemption by using a ‘bare trust’.
- Child Tax Credit
A Child Tax Credit (CTC) is available to some families. To see whether you are entitled to claim visit www.gov.uk/child-tax-credit.
- Junior Individual Savings Account (Junior ISA)
The Junior ISA is available for UK resident children under the age of 18 who do not have a Child Trust Fund account. Junior ISAs are tax advantaged and have many features in common with existing ISAs. They are available as cash or stocks and share based products.
High Income Child Benefit Charge
A charge applies to 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 will apply to the partner with the higher income.
The income tax charge will apply 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.
Child Benefit claimants can elect not to receive Child Benefit if they or their partner do not wish to pay the charge.
The Child Benefit for two children amounts to £1,788.
The taxpayer’s adjusted net income is £54,000.
The income tax charge will be £715.
This is calculated as £17.88 for every £100 above £50,000.
For a taxpayer with adjusted net income of £60,000 or above the income tax charge will equal the Child Benefit.
Any plan must take into account specific circumstances and it is important that any proposed course of action gives consideration to all areas of tax that may be affected by the proposals.
Tax savings can only be achieved if an appropriate course of action is planned in advance. It is therefore vital that professional advice is sought at an early stage. We would welcome the chance to tailor a plan to your own personal circumstances so please do contact us.
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