• Time to Give Your Family Finances an MOT
Article:

Time to Give Your Family Finances an MOT

11 January 2022

Money may be the last thing on your mind right now, but with NIC due to rise in April, and tax allowances frozen for the next few years, we should look to manage family finances and give them an overhaul at least once a year. 

Once you have your pension position sorted, the other basic building blocks for tax-efficient personal finances are family savings and long-term plans. 

From age 18, UK residents can invest up to £20,000 each in an ISA, and parents can fund a junior ISA or child trust fund with up to £9,000 per child – (that’s £58,000 for a family of four). If you have an adult planning to buy a home, consider gifting funds to them so that they can invest in a Lifetime ISA (LISA).

Savers can invest up to £4,000 a year, to which the government will add a 25% tax-free bonus (max. £1,000 a year) towards a first home or as a pension as part of their overall £20,000 ISA investment limit. Income and capital gains from ISAs are tax-free, and withdrawals from adult ISAs do not affect tax relief.

Of course, when it comes to buying a home, children will often need more help. There are a variety of ways to help fund a house purchase, but it is usually most tax-effective for the child to buy the home in their own name to save on SDLT. Whether you simply gift or lend money to them, or go for a ‘joint borrower sole proprietor’ mortgage, or just provide a deposit as security will depend on the circumstances, but there are now many options available if you plan ahead. 

If you have investments outside ISAs, it’s probably a good time to review them. Remember that everyone can realise capital gains up to the annual exemption tax-free – £12,300 in 2021/22, but the allowance is lost if not used. 

Married couples and civil partners can transfer assets between them on a no gain/no loss basis, and such transfers should be considered to ensure that the annual exemption can be fully used and any CGT paid at the lowest rate, but it is important to ensure that any such transfer is outright and unconditional.

For more experienced investors, it might be worth taking a look at Venture Capital trust (VCT) investments or smaller companies whose shares qualify for the Enterprise Investment Scheme (EIS). As these investments carry a higher level of risk, there are significant tax reliefs available to investors. For example, investments in qualifying EIS companies attract income tax relief at 30% on a maximum annual investment of up to £1 million for qualifying individuals: VCTs also qualify for 30% tax relief on investments up to £200,000 a year. They have further tax advantages, but there are minimum period of ownership rules and, as always, it is important to get investment advice from an independent financial adviser.

Finally, it’s never a bad time to take another look at your Will to ensure it is up to date. If it doesn’t reflect your current family circumstances and future plans, adjusting it now can ensure it stays tax-efficient for the future.

Read our tax planning guide or get in touch with our team.