If you’re a parent you’ll know how important it is to put some money aside for your children; whether with the intention of using it to help fund them going to university one day, or to start building a safety net for their future.
Problems arise when you start putting money aside and realise that certain tax laws mean a large portion of anything you save will be taken from your savings each year. For this reason, below we have detailed three of the most efficient ways to save for your children, both in the short term, and for their futures.
The £4,000 Tax-Free Junior ISA
During Budget 2014 Chancellor George Osborne confirmed that, from 1 July 2014, the annual tax-free savings limit for a Junior ISA will increase from £3,720 to £4,000.
This is great news for the 300,000 children under the age of eighteen that currently hold a Junior ISA, a number HMRC confirmed in March of this year, while an estimated six million children still hold a Child Trust Fund (CTF), the precursor to Junior ISAs.
Introduced in 2010 following the closure of the CTF Scheme, if your child is 16-17 and doesn’t currently hold a Junior ISA, you should sign them up immediately so to utilise their annual savings limit. If your child still holds a CTF their balance will automatically transfer to a Junior ISA from April 2015. Both Junior ISAs and CTFs automatically roll over into an adult ISA once the child reaches age eighteen.
Gifting to Your Children Before Your Death
Due to Inheritance Tax (IHT) laws, gifting to your children can prove to be costly unless you adhere to certain rules to take advantage of your IHT exemptions. Keep in mind that if you die within seven years of making these gifts, and the total value of these gifts is less than the inheritance tax threshold, the value of these gifts will be added to your estate.
• Each year you may give away £3,000 (per person, not per child) in cash or assets, tax free.
• When your child gets married or enters into a civil partnership you may give them cash or gifts up to £5,000, tax free (grandparents can give them £2,500, tax free).
The Childcare Voucher scheme is soon to be stopped, but that shouldn’t stop you from applying for your available childcare vouchers before the Government’s new, tax-free Childcare scheme takes over from the Childcare Voucher scheme in late 2015.
You can maximise your available savings under the current scheme by signing up to your employers salary sacrifice voucher scheme and exchanging the maximum amount of your salary for the vouchers that is allowable under your tax band (up to £243 per month for basic rate taxpayers, £124 for higher, and £97 for additional). Both parents can claim these amounts, so long as each of you live with and/or have parental responsibility over a child.
Childcare vouchers are exempt from tax and National Insurance Contributions (NICs), therefore opting for these vouchers in place of a portion of your salary reduces your overall tax and NICs.
Professional Advice on the Best Ways to Save for Your Children
To speak with a professional to discuss the most tax efficient ways to put money aside for your children, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.