Coming in from the cold: tax planning for families

The freezing of many tax thresholds and allowances has increased the importance of family tax planning.

In his spring 2021 Budget, the Chancellor announced many tax allowances and thresholds will not change until April 2026. By 2025/26 the government expects 1.3 million more people to be paying income tax and 1 million more to be higher rate taxpayers than would be the case were thresholds inflation linked.

The eroding effect of these freezes means that many couples who have not had to think about their tax planning jointly now need to do so. For example:

  • The high income child benefit charge only applies if one of a child’s parents, or adults in the child’s household, (married or not) has income of over £50,000 – a figure unchanged since January 2013. When combined with higher rate tax, the result is a marginal tax rate of up to 58.3% (59.3% in Scotland) for a two-child family. By rearranging ownership of their investments – and hence receipt of investment income – some couples may be able to avoid either of them reaching the £50,000 trigger point.
  • Capital gains and capital losses for married couples and civil partners. If you make a capital gain of £15,300 in a tax year and your partner makes a loss of £3,000, you end up with a capital gains tax (CGT) charge on £3,000, even though your joint net gains match the £12,300 annual exemption. On the other hand, if your partner transferred their loss-making asset to you and then you sold it, the loss could offset your gain.

As with any area of tax planning, make sure you take advice before acting. For instance, the capital gains tax example above will not work for couples that are neither married nor civil partners – the transfer of shares would crystallise the loss. 

The Financial Conduct Authority does not regulate tax advice, and levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change.

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