Practical tax information to help you navigate through the tax system and plan tax efficiently by providing you with an overview of the key tax rules.
Throughout this guide you will find a number of tax tips and checklists to help you identify planning opportunities, pitfalls to avoid and areas where you may need to take action. We would be happy to help with advice on your specific position.
The rules, rates and allowances in this guide relate to the 2025/26 tax year and these may be different for other tax years.
Family Matters
Married couples
Spouses are taxed as independent persons, each of whom is responsible for their own tax affairs. The phrase ‘spouse’ whenever used in this guide includes a registered civil partner.
For spouses, there is no aggregation of income, no sharing of the tax bands and, except in limited circumstances detailed below, the personal allowance may not be transferred from one spouse to the other.
However, tax can be minimised if spouses equalise their income so that personal allowances, savings allowances and dividend allowances are fully utilised and higher/additional rates of tax are minimised.
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In 2025/26 Ian and Angela have savings income of £50,000, dividend income of £50,000 and no other income. If this is split equally between them, the total tax bill for the couple is £6,860. If only one spouse has an income of £100,000 and the other has nothing, the total tax bill leaps to £23,092 – an additional £16,232! |
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A donation to charity under the Gift Aid scheme benefits from tax relief. It makes sense for a higher rate/additional rate taxpayer spouse to make such donations so that they can benefit from the extra tax relief. |
Equalising assets may also be beneficial from an IHT perspective (see Preserving the inheritance).
Marriage allowance
Married couples and civil partners may be eligible for a Marriage Allowance (MA). The MA enables spouses to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples.
The option to transfer is available to couples where one party has not used all of their personal allowance and the other does not pay tax at the higher or additional rate. If eligible, one spouse will be able to transfer 10% of their personal allowance to the other which means £1,260 for the 2025/26 tax year.
Relief is given as a basic rate tax reducer with a benefit of up to £252 (20% of £1,260).
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It is also possible to backdate a claim for Marriage Allowance for up to four years – please contact us if you think this might apply to you. |
A Married Couple’s Allowance may also be available, but only where one spouse was born before 6 April 1935, so has not been considered further in this guide.
Jointly owned assets
Married couples or civil partners will often own assets in some form of joint ownership. This can have benefits for income tax, CGT and IHT.
Where assets are owned jointly by spouses, any income is deemed to be shared equally between the spouses unless an election is made to split the income in the same proportion as the ownership of the asset. See Property investment for an example of this.
This does not apply to shares in close companies (almost all small, private, family owned companies will be close companies) where income is always split in the same proportion as the shares are owned.
Capital gains tax
Independent taxation also applies to CGT. Each spouse is entitled to take advantage of the AEA of £3,000 before any CGT has to be paid.
This is advantageous where assets are held jointly and then sold as each spouse can use their AEA to save tax.
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The transfer of assets between spouses takes place at no gain no loss for CGT. This is sometimes done shortly before assets are sold to minimise tax. |
The tax neutral treatment for spouses remains up to the earlier of the end of the third tax year after that in which they ceased to live together or the date on which a court grants a divorce or annulment of marriage, or dissolution or annulment of a civil partnership. Transfers in accordance with the divorce or dissolution are also at no gain or loss without a time limit.
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Transferring assets or interests in a business between spouses may attract the interest of HMRC especially where it is obvious that it has been done primarily for tax saving purposes. Transfer of ownership of an asset must be real and complete, with no right of return and no right to the income on the asset given up.
If a non-working spouse is given shares in an otherwise one-person, private company, HMRC may, in some circumstances, seek to tax the working spouse on all of the dividends under what is known as the ‘settlements legislation’. You may want to consider obtaining advice from us before entering into this type of arrangement.
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What about unmarried partners?
It still pays to equalise income as much as possible, as income tax will be minimised. However, transfers of assets may be liable to CGT and, if substantial, could also lead to an IHT liability. It is vital for unmarried couples to each make a Will if they wish to benefit from each other’s estate at death.
Children
Transferring income to children
If a child has sufficient income to make them liable, they will be taxed in exactly the same way as an adult. However they also benefit from their own personal allowances and tax bands. Where their only income is low, there may be some scope for transferring income producing assets to the children to use up their personal allowance.
Note that if assets are provided by a parent then the income remains taxable on the parent, unless it does not exceed £100 (gross) each tax year. However, this option could be considered where grandparents or other relatives wish to pass on wealth. Be mindful of capital and inheritance tax implications of the transfers of assets.
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Children may be employed in the family business so as to take advantage of their personal allowance (subject to legal restrictions). It is essential that payment is only made for actual work carried out for the business and at a reasonable commercial rate. |
Children and capital gains
Children also have their own AEA for CGT, so assets transferred to them which are expected to grow in value may prove to be advantageous.
Child Trust Funds (CTFs)
The availability of new CTFs ceased from January 2011, as did government contributions to the accounts. Existing CTFs, however, continue to benefit from tax free investment growth. No withdrawals are possible until the child reaches age 18. However, the child’s friends and family are able to contribute up to the annual limit of £9,000. It is possible to transfer the investment to a Junior Individual Savings Account.
Junior ISA (JISA)
A JISA is available for UK resident children under the age of 18 who do not have a CTF account. JISAs are tax advantaged and have many features in common with existing ISAs.
They are available as cash or stocks and shares based products but a child can only have one cash JISA and one stocks and shares JISA. The annual investment is limited to £9,000.
Other children’s savings options are available which may be tax efficient such as National Savings Children’s Bonds and Friendly Societies’ savings plans.
High Income Child Benefit Charge
A High Income Child Benefit Charge (HICBC) arises on a taxpayer who has adjusted net income (ANI) over £60,000 in a tax year where either they or their partner are in receipt of Child Benefit for the year. Where both partners have adjusted net income in excess of £60,000 the charge applies to the partner with the higher income.
Note in this case ‘partners’ does not just include spouses and civil partners but also couples living together as if they were married or in a civil partnership.
The HICBC applies at a rate of 1% of the full Child Benefit award for each £200 of income between £60,000 and £80,000. The charge on taxpayers with income of £80,000 or above will be equal to the amount of Child Benefit paid.
Child Benefit claimants are able to elect not to receive Child Benefit if they or their partner do not wish to pay the charge.
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Equalising income can help to reduce the charge for some families.
In addition, the amount of HICBC is calculated based on ANI. As mentioned in A Few Essentials, making gift aid payments and personal pension contributions will reduce an individual’s ANI and therefore potentially the HICBC. Do get in touch if you think you may be subject to the charge.
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Phil and Jane have two children and receive £2,252 Child Benefit. Jane has little income. Phil expects his ANI to be £70,000. On this basis the tax charge will be £1,126. This is calculated as £2,252 x 50% (£70,000 – £60,000 = £10,000/£200 x 1%).
If Phil can reduce his income by £10,000 to £60,000 no charge would arise. This could be achieved by transferring investments to Jane or by making additional pension or Gift Aid payments. |
Tax-Free Childcare
The scheme is available to families where all parents are working (on an employed or self-employed basis) 16 hours a week and meet a minimum income level (generally £195 a week for over 21 year olds for 2025/26) with each earning less than £100,000 a year. Parents who are receiving support through Tax Credits or Universal Credit are not eligible.
Parents need to register with the government and open an online account. The government ‘top up’ payments into this account at a rate of 20p for every 80p that families pay in. The scheme is generally limited to £10,000 per child per year. The government’s contribution is therefore a maximum of £2,000 per child. The maximum limits are increased to £20,000 and £4,000 respectively for disabled children.
Employer Supported Childcare closed to new entrants on 4 October 2018. Parents who qualify for both schemes are able to choose which scheme they wish to use but families cannot benefit from both schemes at the same time.
We can help
Contact us if you:
- Are married and would like to discuss equalising income streams or transferring assets
- Own your own business and are considering employing your family members
- Claim child benefit (or your partner does) and you or your partner has income over £60,000
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
