It's that time of the year when the kids are back to school or about to start their adventures at university. It also means that it's action time for those cheque books again!
Whether it is tuition fees and related university living costs or private school fees needing to be paid, there is a way to make the paying of these a little less painful.
You see, the tax-free earning allowance (currently £11,000) applies to everyone from birth. This means you can use their allowances to fund your children's own expenses rather than paying out of your taxed income at higher rates of up to 45%.
The allowance got even better from April of this year when the dividend allowance of £5,000 was introduced. So you potentially have £16,000 of tax free income you can extract PER CHILD. So how do you do this?
The answer is the discretionary trust.
Get some advice to help you route some of your company shares to a trust set up for the benefit of your children. Then whenever the company votes a dividend, the trust receives its proportion. And this is money you can legitimately use for tuition fees, living costs, school fees, clothing, extra-curricular activities, presents, etc etc - basically anything for their benefit. Rather than you spending on the children from your post-tax drawings, you are effectively using your children’s allowances to fund their own (never-ending) expenses!
It’s not an aggressive tax scheme either.
The concept of a trust set up to hold capital is a long established and respected one. And with income tax savings of at least £5,200 per child per year (and rising), you’d be crazy not to look into it.
To find out more about this tax saving strategy feel free to drop me a line to arrange a strategic consultation.
Remember – making strategic use of your family’s personal allowances helps you to keep more of what you earn.