Pictured above: Sarah Moss
Further to the announcement this week about the changes to child
benefit, PKF Accountants & business advisers suggests ten top
money saving ideas for families with stay-at-home mums/dads.
Sarah Moss, partner at the Birmingham office of PKF says,
"Chancellor George Osborne's announcement last Monday means many
families will be worse off from 2013 - particularly those where the
main bread-winner is a higher rate taxpayer. Here we suggest ten
top ways in which to boost the family finances and help soften the
blow."
Use the entitlements of the lower income spouse
• Personal allowance and basic rate band can be used by
transferring income producing assets from the higher income spouse
to the lower income spouse. This can work with investments (cash
& shares & stock) but is most likely to involve transfer of
shares in a family company or a buy to let property. Both spouses
ISA limits should also be used where appropriate.
• Although with very low returns on cash investments,
couples should perhaps first consider realising any income
generating assets left over to repay outstanding debts -
particularly credit cards and unsecured loans.
• The self employed should consider employing a stay at
home spouse for business support work with at least minimum wage
rates paid, this will give the household additional tax-free income
and should reduce the higher earner's income for benefit
purposes.
• Capital gains tax exemption - transferring an asset that
is standing at a gain to spouse (a no gain no loss transfer) who
then sells it and realises profit to use his or her exemption -
could save CGT at 28%. Similarly, a transfer of assets standing at
a loss to the higher earning spouse can be beneficial: when the
assets are later sold, the loss can be set against other capital
gains made by the spouse in the same year (or later years).
However, when the asset is transferred, the receiving spouse must
have an unfettered right to sell or retain it as he or she wishes -
otherwise anti-avoidance legislation may apply.
Reduce the taxable income of the higher earner
• Pension contributions - should be made by the higher
earner so that 40% relief is obtained. Contributions made for the
lower earner by the higher earner would reduce the high earner's
income for benefit purposes but would only attract basic rate tax
relief - so if you are looking to cut back these are the payments
to stop first. This is not ideal in terms of building up a pension
pot for the stay at home spouse, but it is most cost-effective
now.
• Charitable giving - should all be done by the higher
income spouse so that the family makes the most of the higher rate
tax relief available on gift aid payments to better off donors.
• Sacrifice salary for benefits in kind where your employer
offers this option - benefits such as childcare vouchers and
pension contributions, can reduce the taxable income of the higher
earner for benefits purposes but not leave you any worse off and
may save on NIC.
Claim everything!
• Make sure your tax code is correct and that you have
claimed for all possible deductions e.g. professional
subscriptions, business mileage at approved mileage rates, higher
rate relief on personal pension and gift aid payments. We all now
know that HMRC may have got your tax code wrong anyway, but if you
have not told them what you are entitled to in the past you could
now be due a refund.
• Actively consider joining any employer share scheme on
offer to you - many have tax advantages. For example, the SAYE
share scheme allows you to save up to £250 monthly over 3, 5,
or 7 years with any interest tax free and allows you the option of
buying employers shares at a 20% discount (to the market price at
the start). So if you join a three year scheme each year, after 3
years you could end up with a tax free sum (assuming you make a
gain and your annual gains allowance is available) each year that
could pay for Christmas or a holiday.
Finally
• Buy any expensive household items you will need in the
next year or so by 3 January 2011 to avoid the 2.5% VAT rise.
For more information about PKF, please visit their website here:
www.pkf.co.uk