Jo White FCA CTA
- Private Client Tax Director
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Recent figures published put the basic cost of raising a child in the UK to the age of 18 for a couple at £71,611 and £97,862 for a single parent. With additional costs this increases to £152,747 and £185,413 respectively and doesn’t include other factors such as private education or expensive hobbies.
And all this before the costs of university education, gap years or a helping hand to get on the property ladder…
It is clearly never too early to start to plan for the cost of raising a family or for future generations and grandparents might also want to consider helping their children and grandchildren with some of these costs.
Maximising the use of any ISA and Junior ISA allowances can be useful for this purpose to ensure any income and capital growth is received tax free.
Other major costs for parents is the cost of childcare and if this autumn you have a child who will start nursery education or school, there is some help available.
Childcare costs can’t be offset against business expenses, but there is help for both the self-employed and those in employment who can receive 20% of the costs towards childcare from the Government.
To qualify you need to open an account – go to www.childcarechoices.gov.uk
The scheme is open to those earning under £100k and at least £142 per week who are not receiving Tax Credits, Universal Credit or childcare vouchers. Your children must be aged 0-11 or 0-16 if they are disabled. You, family members or employers can contribute to the account and for every £8 paid in, the Government tops it up by £2. This means over the course of a year you could receive up to £2k per child. Payments over the £10k threshold do not receive the additional Government top up.
All families in England regardless of income receive 15 hours of free childcare or early years education for 38 weeks each year for children aged 2, 3 and 4 and 30 hours if parents are working, subject to an income cap. Some childcare providers will allow these hours to be used over 52 weeks so speak to them to find a solution best for you and your family. Other help for working families in the UK with children under 16 or 17 if disabled is available via Tax credits and Universal Credits, again this is earnings based.
Online calculators can help you work out which is the best option available for you and your family and can help the self-employed where income may fluctuate.
Where grandparents or other family members wish to help with the cost of education, whether now or in the future, then a family trust may be beneficial. There are a number of tax advantages to setting up this type of structure which could allow income generated from any capital held in the trust with little or no tax, depending on the values involved and the number of beneficiaries (children) benefiting from the fund. It also allows for asset protection which may not be the case if capital for this purpose is held personally.
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