6 Family Friendly tax reduction ideas

Having a family can be a struggle – it means changes to all aspects of your life, and if you are like me then you realise that you just don’t have enough time to get everything done.

When it comes to family finances, it’s no different.

But with a little fore thought and planning you can make big gains.  Here are 6 family friendly ideas that combined can save you thousands in tax.

These are all not in any way tax evasion – just quite simply ways that the tax system works.  In the UK you are generally taxed as an individual and that raises opportunities for families to manage their taxes

1. Use the Marriage Allowance

Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner.  Not many people do it because it is a bit complicated – but it’s not really.  This can reduce their tax by up to £238 every tax year.

If one partner isn’t earning above the personal, you can transfer some of the personal allowance and save tax.

2. £50,000+ earners pay into your pension!

If you earn above £50,000 and claim child benefit, the taxman claws back 1% for every extra £100 you earn.  Above £60,000 you earn NOTHING!  It’s quite a regressive tax move.

Child benefit for the first kid is £20.70 a week ( £1074.60/year) and £13.70 a week (£712.40/year) for each kid thereafter.  For a nice Gentleman’s Family like mine, the kids earn us £1788.80 a year which is equivalent to over £260 extra income for a lower rate tax payer or almost £3100 for a higher rate tax payer.

With two kids, an extra £100 income at £50,000 a year means you pay £40 tax, £2 NI as well as losing out £18 in child benefit.  That makes an extra £100 worth only £40 or effective tax at 60%!

Paying into a SIPP to reduce your taxable income can mean you make a super return.  And there are other benefits of claiming child benefit – even if you earn above £60,000.

3. Pay into the right pension

Pensions come in all shapes and sizes.  I used to have a gold-plated defined benefit / final salary / golden handcuff one from the old company.  Now I don’t. 😦  But it’s still quite generous in that I pay in 5% and they pay in 7% and it allows me to benefit from salary sacrifice – I’ve taken the salary sacrifice a bit too far though.  The Lady’s pension doesn’t and she gets a 5% / 5% deal.  So, it makes more sense for us for me to over pay into my pension and for her to pay just 5%.  But how many couples know what their partner’s worlplace pension is?

4. Transfer assets between spouses

Everyone’s situation is different and often couples getting together have the headache of managing to combine assets together.  I’m not going to tell you to put everything in your new boy/girlfriend’s name and take the blame when she leaves you – but there’s not much point in one person paying too much tax when another isn’t.

There are a few allowances to UK tax payers that mean that being in a couple can be a very tax efficient vehicle.  These include:

  • Personal allowance (covered above)
  • Capital gains tax allowance (£11,700 per person per tax year)
  • Dividend allowance (£2,000 per person per tax year)
  • Personal savings allowance (£1,000 per person per tax year)
  • Starting rate for savings (covered below)

Transferring of assets between spouses is free of CGT and is common practice and a good way to reduce your tax liability.  There are some limits on what can/can’t be transferred (like ISAs) – so DYOR before trying anything too crafty.

For dividends, tax is paid on any excess dividends over and above the £2,000 allowance, with the rate depending upon whether total income falls within basic, higher or additional rate tax band. The rates currently applied to these bands are 7.5%, 32.5% and 38.1% respectively.  Geting this right is especially important for anyone with their own IR35 company or who already receives substantial dividends and is a higher rate tax payer.

5. Use the Personal Savings Allowance

Ok, interest rates are as low as a snake’s belly and if you are trying to live off interest it’ll be hard to get buy.  Some people do like cash savings and GFF himself has a few regular savers pumping out interest every tax year.  If you are moving towards FIRE, chances are you’ve got some cash spare.

The starting rate for savings is an HMRC idea and can help you out and it is as the HMRC says below:

If your other income is less than £16,850

Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.


  • You earn £16,000 of wages and get £200 interest on your savings.
  • Your Personal Allowance is £11,850. It’s used up by the first £11,850 of your wages.
  • The remaining £4,150 of your wages (£16,000 minus £11,850) reduces your starting rate for savings by £4,150.
  • Your remaining starting rate for savings is £850 (£5,000 minus £4,150). You do not pay tax on your savings interest.


Not bad eh?  Using this correctly could mean savings of up to £1,000 for a basic rate tax payer spouse.

If you/your partner’s only income consists of savings income, then using your personal allowance, the starting rate for savings and the personal savings allowance together, could allow you to earn savings income of up to £17,850 without paying tax.

6. Giving to charity/gift aid

Many of the everyday attractions that you go to with your kids are also registered charities.  For example the National Trust or National Trust for Scotland.  If you join, then you can claim that expense as a charitable donation and claim the tax back on it!  Membership for a family is around £125 a year and it’s worth getting for kids of all ages.  That £125 can allow you to claim back £31.25 from the tax man for lower rate tax payers.  Claim on your self-assessment form.

Please note, “donations” at charity auctions don’t count.

Thanks, GFF




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