If your taxable earnings for 2015-16 are likely to exceed £100,000, perhaps for the first time, now would be a good time to consider your tax planning options before 6 April 2016.
For every £1 your income exceeds £100,000 your income tax personal allowance will be reduced by £2. In effect, when your income reaches £121,200 you will no longer qualify for this allowance.
This would have a dramatic effect on the income tax charged on this top slice of income: from £100,001 to £121,200. The effective rate of tax charged would be 60%.
Accordingly, any steps you can take to reduce your income below £100,000 will save you £600 for every £1,000 reduction.
Earnings over £50,000
When the adjusted income of either parent exceeds £50,000 the family entitlement to child benefit reduces by 1% of the benefit for every £100 the income of the highest earner exceeds £50,000.
In plain English, this means that when the income of either parent is £60,000 or more the financial benefit of claiming child benefit is lost entirely.
It is worth reviewing income levels now to see if adjusted income can be reduced below the £50,000 threshold before 6 April 2016.
Possible strategies to keep you below this level include:
- Increase pension contributions
- Transfer income producing assets to a spouse or civil partner
- Make additional gift aid payments to increase your basic rate band
- There may also be opportunities for some tax payers to shelter income in a limited company
- If parents are in business together, change profit share arrangements to equalise incomes
Take advice to see if you can reduce adjusted income of parents for 2015-16 below £50,000. This will ensure there is no claw-back of your child benefits received. For a family with two school age children, benefits at risk would amount to £34.40 per week, £1,788.80 per annum…