Make tax-efficiency a family affair

Making the most of tax-efficient opportunities in the context of the wider family – from children through to grandparents – can make a significant difference over time.

Here we explain a few of the ways it might be possible to take advantage of the allowances and opportunities the government has created for family units.

Use both sets of allowances

As each person is taxed separately, make sure that you and your spouse or civil partner are making best use of both your personal allowances, plus both your basic rate tax bands, savings allowances and dividend allowances.

For instance, putting savings plans in the name of the lowest earner may enable the higher earner to pay less tax. Such transfers must be outright gifts and must be completed by 5 April to count for the current tax year.

Do you pay high income child benefit charge?

If you have children and your or your spouse’s or civil partner’s income is more than £50,000 you may have to pay the high income child benefit charge. To retain the full allowance you could consider making additional pension contributions in order to keep your taxable income below this threshold. Alternatively, you can elect to stop receiving child benefit.


TIP : Could you keep each parent’s income below £50,000? If one income is just above the threshold, maybe they could consider paying a bit more into their pension to reduce their taxable income. If both parents’ income is £50,000 or less, the household can receive full Child Benefit.


Saving for children

Did you know that children have their own allowances and tax bands? This can be helpful if you want to give money to your children or grandchildren. There are also a number of tax-efficient ways of saving for children.

For example, Junior ISAs are available to children under the age of 18 who live in the UK and do not have a Child Trust Find. Parents, other family members and friends can pay in up to £4,368 in the current tax year. They can pay the same amount in to a Child Trust Fund (a similar account which preceded Junior ISAs). Also, it is possible to transfer Child Trust Funds into Junior ISAs, which can give more choice and flexibility in terms of investment options. 

TIP : Could grandparents or other relations pay directly into a child’s savings account? This is likely to be more tax-efficient than a parent paying in or the money going via the parent.


Strange as it may sound, setting up a pension for a child is another useful tool for family financial planning. Up to £2,880 a year can be paid in to a child’s pension each year and, as it qualifies for tax relief, this is topped up to £3,600 by HMRC (or the equivalent if a lower amount is paid in). Not only does this give the child a head start in the funding of their pension, it also enables grandparents to pass on money without the beneficiary being able to access it for a good few years. Of course, third parties can contribute to pension schemes of people of any age, (not just children) within the annual limits.

While it makes sense to make your finances as tax-efficient as possible, a decision should rarely be made on the basis of tax alone – it must also make sound financial sense and you should always take professional financial advice before acting.

Tax and divorce

There can be significant tax consequences when you separate or divorce. Often assets such as the family home or share of a pension fund are transferred between spouses or civil partners. The timings of these transfers needs to be carefully thought through in order to avoid potentially costly tax consequences.

If an asset is transferred between spouses or civil partners up to the end of the tax year in which marital separation occurs no capital gains tax is payable. However, if the transfer takes place after the end of the tax year of separation, capital gains tax may be payable.

Book a review of the family finances

To book a review of the family finances with one of our professional financial advisers call 08000 85 85 90 or email or contact your usual Lighthouse Financial Adviser.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice with no investment element is not regulated by the Financial Conduct Authority.