Family Tax Planning
With the high cost of university and college education, encouraging
children to start saving early can help them in later years.
Parents and grandparents may want to give some money to their
children or grandchildren for the future.
There are several tax-efficient ways to do this and you will
need to bear these points in mind...
A child has the same personal allowance as an adult, which is
currently £4745 per annum. This means that if a child's
income is below this level, they may not have to pay any tax.
This could be an incentive for a child to work within a family
business at weekends and during school holidays as no tax would
be deducted from their earnings. Also see 'Bits and Pieces' on
the use of the P38(S).
If a parent gives money to their child, any annual interest
over £100 earned from that money is counted as the parents'
income (but see 6 below). For instance, if a parent puts £5000
in a bank account in the child's name, any interest earned on
the account is treated as if it were the parent's.
However, grandparents can give money to their grandchildren
without being affected by these rules. So, grandparents can put
money in a unit or investment trust for their grandchildren,
which can be a tax efficient-way of saving towards school or
university fees.
Parents or grandparents can set up a trust to transfer their
assets to their children or grandchildren.
From 6 April 2005 a parent will be able to contribute to a child's
trust fund without any income from that trust being taxed as
the parent's income. This only applies to children born after
31 August 2002.
Giving money to children can reduce any future inheritance tax
(IHT) liabilities because a gift of £3000 a year is exempt
from IHT.
You are sure to have many other questions that need answering
for your particular situation.
Appletons will be pleased to advise you on how the tax rules
of providing for your children or grandchildren affect you.
