Ascentis TV Tax Tips
Welcome to this month’s edition of Ascentis Tax Tips! In today’s discussion, we address a common query: Can parents pay school fees through their limited company? While it may seem like a straightforward decision, there are intricacies and tax planning opportunities that can make a significant impact on your finances.
School Fees and Limited Companies: When it comes to paying school fees for immediate children through a limited company, the straightforward answer is that it offers no real tax advantage. Directors or employees paying school fees in this manner are subject to income tax and national insurance, much like any other method of drawing money from the company.
Tax Planning with Trust Structures: However, a clever tax planning strategy involves utilising a trust structure. By gifting shares to a trust, the trust becomes the owner and can receive dividend income. If the children are beneficiaries of the trust, it can be directed to cover their school fees. This approach could potentially save on income tax.
Limitations for Parents and Opportunities for Grandparents: Parents attempting this strategy may encounter obstacles due to settlements legislation. However, grandparents, especially those still involved in the company, can undertake this planning for their grandchildren. The settlements legislation doesn’t apply to grandparents and their grandchildren, presenting an opportunity for tax savings.
Considerations and Mechanics of Trust Planning: Setting up the trust involves careful planning, considering factors such as the type of trust and its potential long-term use. Grandparents transferring shares to the trust must navigate inheritance tax and capital gains tax implications. Once established, the trust receives dividend income, and beneficiaries (grandchildren) can reclaim income tax, making the dividends effectively tax-free.
Director Salaries for 2022-23: Switching gears, we delve into director salaries for the new income tax year. While the employee national insurance threshold has increased, the employer threshold hasn’t, impacting sole directors. Sole directors should aim for a salary of £9,096 to avoid employer national insurance contributions.
For directors with staff, the optimal tax-efficient salary is £11,908, balancing employers’ national insurance and corporation tax savings. However, exceeding £12,050 could trigger employee national insurance due to a lag in alignment with the tax-free personal allowance, effective from July 6th.
Whether considering school fees or director salaries, careful consideration and strategic planning are key to maximising benefits and minimising tax liabilities.
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