Personal & Family Tax FAQs

A portion of one spouse's personal allowance can be transferred to the other spouse. This is known as the "Marriage Allowance". Here's a simple breakdown:

1. What is Marriage Allowance?

·   Marriage Allowance allows one spouse or civil partner to transfer a fixed amount of their personal allowance (the amount of income you can earn tax-free each year) to their spouse or civil partner. This can result in a tax saving for the couple.

2. Eligibility:

·   The person transferring some of their personal allowance (the "transferor") must have income that is less than their personal allowance and therefore not be liable for income tax.

·   The recipient spouse or civil partner must be a basic rate taxpayer.

·   The couple must be either married or in a civil partnership.

3. Benefit:

·   The recipient spouse or civil partner receives a higher personal allowance for that tax year, meaning they can earn more before they start paying income tax. The transferor's personal allowance is reduced by the same amount.

4. How to Apply:

·   You can apply for the Marriage Allowance online through the HM Revenue & Customs (HMRC) website. If approved, the changes to the personal allowances will be reflected in the tax codes of both individuals.

5. Not Permanent:

·   The decision to transfer a portion of the personal allowance using the Marriage Allowance is not permanent. It applies for one tax year at a time, but it can be renewed each year. If circumstances change (e.g., if the transferor starts earning more), the couple can cancel the arrangement.

For property income where the property is held jointly by a married couple or civil partners, the default assumption by HMRC is that the income is split equally, 50:50. This means each person would report half of the income on their tax return and pay tax on their respective half.

However, if the actual ownership shares of the property are different (e.g., 70:30), then they can notify HMRC of the actual beneficial ownership and split the income accordingly on their tax returns. To do this, they might need to provide evidence or documentation to prove the different ownership or income shares.

There are more complicated ways to override the 50:50 rule involving Declarations of Trust and formal notification to HMRC.

It's also worth noting that this default 50:50 rule only applies to married couples and civil partners who live together. Different rules may apply if they're separated or not in a legally recognized relationship.

As with all tax matters, if you're unsure or if your situation is complex, it's always a good idea to consult with a professional accountant.

Yes, you can pay your spouse from your business, but there are important considerations to keep in mind:

1. Genuine Work: Your spouse should genuinely be carrying out work for your business. This means they should have specific responsibilities and tasks, just like any other employee.

2. Appropriate Salary: As long as there is genuine work being performed, the salary you pay your spouse does not need to reflect the market rate for the type of work they're doing. In other words, it need not be what you'd pay someone else for the same role and responsibilities.

3. Documentation: Maintain proper documentation of the employment, such as an employment contract, timesheets, and records of work done. This provides evidence if HMRC ever queries the arrangement.

4. Tax and National Insurance: Just like any other employee, you'll need to operate PAYE (Pay As You Earn) for your spouse. This means deducting tax and National Insurance from their wages and paying it to HMRC.

5. Benefits: Generally, the business can claim the wage as an expense, reducing its taxable profit, and the salary can use up your spouse's personal tax-free allowance if they have no other income.

6. Potential Pitfalls: Although their salary can be higher than a market value, if it can be demonstrated that there is an attempt to gain a tax advantage by effectively reducing your own salary, this can draw scrutiny from HMRC and could lead to adverse consequences.

1. No Direct Tax on Receipt: As the beneficiary, you usually don't have to pay tax on the value of what you inherit at the time you receive it.

2. Possible Future Taxes: However, if you later sell or earn income from the inherited asset, such as rental income from an inherited property, you might need to pay tax. For example, you could be liable for Capital Gains Tax if you sell an inherited property at a profit compared to its value when you inherited it.

3. Income Tax: If the legacy you receive produces an income (like rental income or dividends), you may need to pay Income Tax on that income subject to the size of your other income and allowances.

4. Exception - IHT Unpaid: If the deceased’s estate didn't have enough funds to pay the Inheritance Tax due, then HMRC might seek payment from the beneficiaries. However, this situation is relatively rare.

In summary, while you generally don't pay tax directly on a legacy you receive in the UK, you might be liable for taxes on any income or gains you make from that inherited asset in the future. It's always a good idea to consult with an accountant to understand your specific tax obligations.

Yes, trusts can be used as a tool in tax planning. By placing assets in a trust, you might be able to manage how they're taxed, potentially reducing inheritance tax or ensuring that the assets are distributed in a tax-efficient manner to beneficiaries. However, the tax implications of trusts can be complex, and there are strict rules and anti-avoidance measures in place. It's essential to ensure that any tax planning is legitimate and not just for tax avoidance. Always consult with a specialist or accountant to understand the best approach for your specific situation.

For Individuals:

Gift Aid:

When you donate under Gift Aid, charities can claim back 25p every time you donate £1 at no extra cost to you. For your donations to be eligible, you need to pay at least as much in Income Tax and/or Capital Gains Tax in that tax year as the charity will reclaim.

If you're a higher rate taxpayer, you can claim back the difference between the tax you've paid on the donation and what the charity got back. You do this through your Self Assessment tax return.

Payroll Giving:

Some employers offer a scheme where donations are deducted from your gross salary (before tax is applied). This means the charity gets your donation and the tax you would have paid on this amount.

Gifts of Shares and Property:

If you donate shares or land/property to charity, you can get relief on both Income Tax and Capital Gains Tax. You can deduct the value of the gift from your total taxable income, reducing your Income Tax bill.

For Businesses:

Companies:

Donations:

Companies can deduct the total value of the donation from their total business profits before they pay tax. This is done when calculating the company's taxable profit.

Sponsorship Payments:

If a company sponsors a charity (e.g., by funding a specific project or event), these costs can typically be deducted as business expenses.

Sole Traders/Partnerships:

Gift Aid:

Like with individuals, if the business donates through Gift Aid, the charity can claim 25% back. However, for the business owner, the donation reduces their taxable profit. If they're a higher rate taxpayer, they can claim the difference on their tax return.

Gifts of Business Assets:

Sole traders or partners in a partnership can get relief on Income Tax when they gift business assets (like equipment, stock, or vehicles) to a charity.

Key Points to Remember:

Always ensure the charity is registered and eligible to reclaim tax.

Keep records of donations to claim tax relief.

It's a good idea to consult with an accountant to ensure you're receiving the appropriate reliefs and that you're making donations in the most tax-efficient manner.

In Simple Terms:

When you or your business gives to charity, you're not just helping a good cause. The tax system rewards this generosity by reducing your tax bill. For individuals, it can be as simple as ticking the "Gift Aid" box. For businesses, it's about deducting the donation from profits before calculating tax. So, giving to charity can, in a way, be a win-win for both the donor and the recipient.

For the majority of individuals, school fees are not tax-deductible , and you can't receive tax relief on them. They are considered a personal expense.

However, there are a few specific circumstances where there might be some relief:

1. Charitable Schools: If you make a donation to a school that's a registered charity, that donation may qualify for Gift Aid , which boosts the value of your donations by allowing the charity to reclaim the basic rate tax on your gift. This isn't a direct relief on school fees, though.

2. Sponsored Students: Some businesses might sponsor a student's fees as part of a training program, which could be tax-deductible for the business. But there are strict conditions around this, and it's not common for school-aged students.

3. Inheritance tax: In certain circumstances, it might be possible for grandparents to pay the fees. If they do, this could reduce the value of their estate and reduce the amount of tax paid on death.  However, this is a complicated arrangement and great care should be taken before entering into such an arrangement.  Such schemes marketed by third parties should be reviewed with a critical eye.

For most parents and guardians, there isn't a way to claim tax relief on standard school fees. It's always a good idea to consult with an accountant for your specific situation to ensure you're making the most of any tax reliefs available to you