Setting your children up for success in a tax-savvy way

As a parent, you are constantly thinking about your children’s future. There are certain periods in life when you might be attempting to keep your own financial plates spinning whilst also looking to set up your children’s finances. This comes with it’s difficulties, especially if you also have older parents with their own range of complex financial needs that you need to consider as well. Your priorities will change over time, particularly when you are considering how you balance your own finances and build a foundation for your children’s future. Tony Clark, Senior Propositions Manager, St. James’s Place, has some advice.

It all helps

It can often feel like you have so many different competing financial needs to consider. Don’t go it alone, you need all the help you can get. It makes sense to take advantage of the opportunities that are right in front of you.

You may well use some of your tax allowances and reliefs already, but are you really making the most of them?

Even the allowances most are comfortable with, for example the annual ISA allowance, can help to take some of the strain when you’re trying to keep those plates spinning.

It may come down to understanding exactly what will be needed and when, so create short, medium and long-term objectives rather than trying to do everything at once. This level of organisation will set you up for success.

The foundation is often ISAs, with Cash ISAs offering rainy-day funds and Stocks & Shares ISAs to give you the potential for growth from your investments. This will help meet your varying objectives, from buying a new home to building a retirement fund.

With younger family members to consider, Junior ISAs are a great, tax-friendly way of developing a pot of money that your kids can access when they turn 18.

You might be thinking about helping them get into university, deal with student debt and even getting on the property ladder. Nowadays, teenagers may face working and retirement lives that are vastly different from those we’re experiencing, so giving them a head start can massively help as they enter the working world.

Think outside the box

Pensions are hugely valuable from a tax perspective, when considering the difference that pension tax relief makes to your investment growth in the long run.

This also applies to setting up pensions for your children. Although this may not feel like a priority, the tax benefits on children’s pensions mean that even very modest amounts paid in from a young age could potentially have great benefits for your children when they reach retirement.

This will give them an advantage as adults as well as setting them up for later in their lives. It can really open up their choices when they begin to approach retirement.

The annual Capital Gains Tax (CGT) allowance is another great break to investigate. It means you can sell a property or investment that has increased in value without paying tax on all the profits you receive.

In the current tax year, the limit is £12,300, and there are different levels of CGT, depending on your income tax band and the asset that you have made a gain on. As the profits on your assets increase over time, knowing how to get the best from the CGT allowance can become critical along with knowing what is exempt.

Don’t wait, start planning ahead today

These breaks mainly work on a use-it-or-lose-it basis, so that means planning ahead is necessary. Take advice well before the tax year ends to make sure you don’t miss out.

Read more:

Dads guide to child tax credits

Six techniques for busy working dads to help their children succeed

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