Introduction to family finance

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INTRODUCTION FAMILY FINANCE

FAMILY FINANCE

For all the joy of raising a family, there’s no denying that it comes with financial sacrifices and burdens that the childless and those with grown-up children do not bear.

Fiscal policies and lending practices used to ensure that families were given the necessary financial slack during these demanding years, but today’s support comes in the form of favourable fiscal policies for dual earner families together with subsidised childcare.

The one-earner breadwinner family is systematically overlooked by the current fiscal system.


Fiscal Information

TAX COMPARISONS

Tax comparisons

 

 

 

Annual income

£30,000

£50,000

£70,000

Annual tax paid by single earner

£4,505

£10,010

£18,010

Annual tax paid by two equal earners

£3,010

£7,010

£11,010

Annual tax differential

£1,495

£3,000

£7,000

Extra tax paid by single-earner family per week

£28.75

£57.69

£134.62

Income per person – single earner

30,000

50,000

70,000

Personal allowance

7,475

7,475

7,475

Income subject to tax

22,525

42,525

62,525

Basic rate band

35,000

35,000

35,000

Taxable at basic rate (20%)

22,525

35,000

35,000

Taxable at higher rate (40%)

0

7,525

27,525

Total tax

4,505

10,010

18,010

Income per person – two earners

15,000

25,000

35,000

Personal allowance

7,475

7,475

7,475

Income subject to tax

7,525

17,525

27,525

Basic rate band

35,000

35,000

35,000

Taxable at basic rate (20%)

7,525

17,525

27,525

Taxable at higher rate (40%)

0

0

0

Total tax

1,505

3,505

5,505

 TRANSFERABLE TAX ALLOWANCES EXPLAINED

Everybody has a Personal Tax Allowance.  This is the amount that you are able to earn or derive from investment income. As can be seen in the table above, £7,475 per annum incurs no taxation at all. So, if you are a dual earning couple then £14.950 of your annual joint income is free of taxation. However, if one partner in a couple has no personal income and these are usually couples with children) then no Personal Tax Allowance can be claimed. And thus an anomaly occurs: the dual earner income household (and it could well be childless) receives better fiscal treatment.  The net tax differentials are clearly shown in the above table.

The fairest remedy would be to allow the non-earner to pass the unused tax allowance to the earning partner, thus restoring parity in fiscal matters and boosting the family income.

Transferable tax allowances are not marriage allowances (as so many politicians and journalists wrongly believe). It would be for government to decide who would be eligible for such tax treatment. Should it be restricted to families with children under a certain age? Should it be restricted to couples in a legally recognised relationship only or should it be extended to cohabitees? Understandably, dual earner couples would neither gain nor lose by this measure, as they already enjoy fiscal advantages.

INCOME SPLITTING

This measure would take Transferable Tax Allowances a step further and would result in full fiscal parity of one-earner families with 2-earner families. Again, it would be for government to decide to whom this fiscal reform should apply.

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