Daily Tax Tips...
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Alternative ways to reduce your tax bill
Personal Alllowances
- Did you know, that from birth you are entitled to tax free allowances? For the year 2009/2010 the allowance is £6,475, so any income, like interest from banks or building societies can be tax free up to this limit. However, anti-avoidance rules mean that income from gifts over £100 from parents are treated as parents' income and are therefore taxable. So to take advantage of the £6,475 personal allowance, the gift of money into your child's bank account will have to be from Grandparents or other relatives.
Capital Gains Tax - Transfer of Property or Share
- Every individual is entitled to a Capital Gains Tax (CGT) exemption, which is £10,100 for 2009/2010. Even children under 18 are entitled to this allowance. However, if you give your asset to someone else, the taxman will treat this as if you sold it at market value and therefore you may still have to pay capital gains tax.
Tip: Transfer a small share in your property each and every year so that the gain made on every transfer is below your annual capital gains tax exemption. Using this method you could eliminate your chargeable gain completely.
This method can be used for the disposal of any asset owned including residential property or shares.
Pension from Birth
- Since 6th April 2001 you have been able to start a pension for a child. For every £10.00 you contribute to the pension, the Taxman contributes a further £2.50. The maximum you can contribute is £2,880 per year which with the Taxmans credit equals a total of £3,600.
Employing your child
- Instead of paying your child pocket money, you could give him/her a job in your company and utilise the personal allowance available. If you decide to do this make sure you give your child a proper contract, ensure your child actually does some work for your business, process through the payroll system and try take a note of exactly when and how much you pay him/her.
Your child as a Shareholder
- If you transfer shares to a child who is over 18, any dividend income received by that child is taxed as the child's income and not yours. This can have considerable tax advantages if YOU are taxed as a higher rate tax payer, as transfering share may be able to push you below the higher tax band. Note as with any of the tips in this section, specific rules need to be followed to ensure compliance with HMRC. Please contact us for expert advice.
Rent a Room Relief
- Did you know that if you rent a room in your own house, the first £4,250 of rental income is tax free? Note that the let must be for residential purposes not, for example, used as office accomodation.
Mortgage Interest
- Did you know you are only allowed to deduct the Mortgage Interest element of monthly mortgage payments? Capital payments made are not allowable.