DO CHILDREN PAY TAX?
Everyone can have a certain amount of income each year without paying tax on it.
In 2000/01 it is £4385 for people under 65 and will probably rise to £4535 in
2001/02. If your child’s income is less than this, they should not pay tax.
Banks and building societies automatically deduct 20% of the interest on savings
to pay basic rate tax. But you can tell them not to. Get form R85 from your bank
or building society or the Inland Revenue. The interest will then be paid gross.
SO COULD I AVOID TAX ON MY SAVINGS BY PUTTING THEM IN THE
KIDS’ NAMES?
No! If the interest on money a parent has given them exceeds £100, then it is
ALL taxed as the parent’s income. However, interest from money given by other
members of the family is not treated in this way. If are married and one of you
does not pay tax, why not put the savings in their name– as long as you trust
each other!
MY DAUGHTER IS A STUDENT – IS HER LOAN TAXABLE?
No. Money from you or the state for maintenance at university is not taxed. And
she gets the same personal allowance as anyone else on her other income. If she
earns less than £4585 next tax year, make sure the interest on her savings or
current account is paid gross and she has reclaimed tax deducted by anyone she
has worked for during the year.
I HAVE TWO CHILDREN AT SCHOOL, IS THERE TAX RELIEF FOR
THEM?
Yes. From April the new Children's Tax Credit starts. It will be worth up to
£10 a week off your tax bill and that may go up in the Budget. All you need is
a child under 16 living with you. There is only one credit no matter how many
children – or parents come to that! If both partners have an income, then it
is normally given to the one with the higher income. If either earns enough to
pay higher rate tax – around £34,000 a year – the credit is reduced. And if
either earns more than £41,735 it will not be paid at all. It is the income of
the higher earner that is counted NOT the joint income.
CHANCE WOULD BE A FINE THING! I EARN ABOUT HALF THAT!
Then you may be able to get Working Families Tax Credit. That is extra money in
your pay packet if you have a dependent child up to 18. The calculations are
inevitably complicated but the lower your income the more it is. If you have two
children at school and your family income is around £20,000 gross, then you
could get £5 a week. There is also an allowance for childcare costs.
I DON’T HAVE ANY CHILDREN BUT I STILL WANT TO SAVE TAX.
Make sure that the first £3000 of your cash savings is in an ISA – an
individual savings account. All interest is then tax-free and you can take money
out of it during the year if you have to – the only restriction is that you
cannot put more than £3000 IN to it during the tax year. If you put £3000 in
now you can put another £3000 in on April 6.
CAN THAT BE ON TOP OF MY STOCK MARKET ISA?
No. If you have already put money into a single stock market ISA (called a
maxi-ISA) then you cannot put money into a cash ISA as well in the same tax
year. You will have to wait until April 6. Instead you might like to consider
putting more money into your pension – it is all tax-free.
CAN I CLAIM TAX RELIEF ON WORK EXPENSES?
For a few things. If you use your own car for work, expenses of up to 45p a mile
can be tax-free. You can even claim 12p a mile for using a bike. Membership of
some professional organisations can be set against tax. If you have to buy or
maintain special work clothes you can sometimes claim money off your tax. And if
your employer gives you a computer worth up to £2000, or a mobile phone, that
is tax-free.
I’VE RETIRED, DO I PAY LESS TAX?
In 2001/02 people aged 65 can have an income of up to £5990 before they pay
tax. And once you are 75 it rises to £6260. You get the higher allowance in the
tax year when you reach that age – so even if your birthday is on the last day
of the tax year – April 5 – you can still claim it. And anyone born before 6
April 1935 can still get the married couple's allowance – not only if they are
married now, but also if they get married in the future. That is worth around
£540 a year.
THAT’S ALL VERY WELL BUT I NEED MORE INCOME NOW
Then why not take in a paying guest? If you rent a room to a lodger you can
charge them up to £4250 a year without paying a penny in tax. You don’t even
have to declare it.
More information
Tax Credits helpline 0845 609 5000
www.inlandrevenue.gov.uk
10 March 2001
e-mail Paul Lewis on paul@paullewis.co.uk