Alan Pink considers whether it is better to take family or household members in as partners or pay them a wage.
The basic idea behind this particular type of income tax planning is simple. Income tax being ‘a progressive’ tax, the rate at which you pay it leaps up when your total income for a year goes above a (comparatively) low threshold. To be specific, an individual with income of about £50,000 in a tax year will pay 20% income tax on the income above the personal allowance but below this threshold and will pay 40% income tax above that.
It is a long-standing anomaly (if you care to call it that) that in this country it’s individuals that are assessed to tax rather than households, because it does not take a Maths degree or even a calculator to work out that a household which has a single earner on £100,000 income will