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Strategies for you and your family
Reaching your financial goals
Every client is unique and will have particular financial needs
and goals. You might simply want to maximise your wealth so
that you can enjoy more of your hard-earned money now and in
retirement. You might need to pay for your children’s education,
or to help support ageing parents. Or perhaps all of the above
apply. As your accountants, we can suggest practical ways to
help make these objectives become reality.
Using exemptions and allowances
Each individual within your family is taxed separately, and is
entitled to his or her own allowances and exemptions. The
basic personal allowance for 2015/16 for those born after
5 April 1938 is £10,600, while the capital gains tax annual
allowance for 2015/16 is £11,100.
A series of rate bands and allowances are assigned first to your
earned income (which includes pensions), then to your savings
income, and finally to any UK dividend income.
Planning within the family
By using the available personal allowances and gains
exemptions, a couple and their two children could have income
and gains of at least £86,800 tax-free, and income up to
£169,540 before paying any higher rate tax. Through careful
tax planning, we could help you and your family to benefit from
more of your wealth.
Your tax planning objectives should include taking advantage
of tax-free opportunities, keeping marginal tax rates as low as
possible, and maintaining a spread between income and capital.
Income tax rates for 2015/16
Rate
Band
Taxable
Income
Earnings
etc
Savings Dividends
Basic
Up to
£31,785
20% 0%/20% * 10%
Higher
Over
£31,785
40% ** 40% ** 32.5% **
Additional
Over
£150,000
45% 45% 37.5%
Capital gains tax rates for 2015/16
Taxable Income Earnings etc Savings Dividends
First £11,100
Tax-free
Remainder
18%/28% ***
* There is a 0% starting rate for savings income up to the starting rate
limit (£5,000) within the basic rate band. Where taxable non-savings
income does not fully occupy the starting rate limit the remainder of the
starting rate limit is available for savings income.
** Personal allowance is reduced by £1 for every £2 that adjusted net
income exceeds £100,000. The effective marginal rate in this band is
60% (dividends 48.75%).
*** Depends on the level of income and gains.
Transferable Tax Allowance
From 6 April 2015 some married couples and civil partners are
eligible for a new Transferable Tax Allowance, enabling spouses
to transfer a fixed amount of their personal allowance to their
spouse. The option to transfer is available to couples where
neither pays tax at the higher or additional rate. If eligible, one
partner will be able to transfer 10% of their personal allowance
to the other partner (£1,060 for the 2015/16 tax year). For those
couples where one person does not use all of their personal
allowance the benefit will be up to £212 (20% of £1,060).
Starting rate of tax for savings income
From 6 April 2015, the maximum amount of an eligible
individual’s savings income that can qualify for the starting
rate of tax for savings is increased from £2,880 to £5,000, and
this starting rate is reduced from 10% to 0%. These rates are
not available if taxable non-savings income (broadly earnings,
pensions, trading profits and property income) exceeds the
starting rate limit.
Case Study
Ella is a single person with a gross 2015/16 income of
£45,600 (made up of £25,600 earnings, £5,000 of interest
and grossed up UK dividends of £15,000) and capital gains
of £11,200 (assuming no other reliefs, etc). She would have a
tax liability of £6,251.38.
Earnings
£
Interest
£
UK
Dividends
£
Gains
£
Income and
gains
25,600
5,000
15,000 11,200
Deduct:
Personal
allowance
– 10,600
Deduct: CGT
exemption
–11,100
Taxable
15,000
5,000
15,000
100
Tax at:
20% on
15,000
5,000
10% on
11,785
32.5% on
3,215
28% on
100
Totals
£3,000.00 £1,000.00 £2,223.38 £28.00
Total tax liability £6,251.38