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TAX TIP TUESDAY: Give a Boost To Your Children’s Finances With This Break

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 

Here at Dental & Medical Financial Services, it’s our job to alert our clients to the lesser known tax rules that allow you to save money and set up the next generation for financial success.

Did you know that after exhausting all the tax relief allowances for yourself, if you have any spare cash, you could make a contribution into your adult child’s pension?

Among other benefits, it will help pad their retirement fund, as many are only starting out in their career and might put saving for retirement on the back burner.

Advantages for your child

We’re huge proponents of starting a retirement savings plan as early as possible and by adding money to your child’s pension pot, they’ll get a jumpstart on saving and reap the rewards of the compound interest from the amount you’ve contributed. Not only that, but they’ll also benefit from the addition of tax relief because it doesn’t matter who makes the contribution, it will always receive basic rate relief.

If the recipient of the contribution is a higher-rate taxpayer they can claim relief at the higher rate on those contributions, once again benefiting from a parental contribution.

To do this, they’ll need to go through the annual tax return process but their tax bill will be reduced so any minimal effort is worth it.

Additionally, any money you input can reduce the penalty they face if they are a higher earner receiving child benefit. If your offspring earns between £50,000-£60,000 or slightly above, the money contributed by you will be deducted from their income before the benefit charge is calculated, effectively reducing their tax liability.

Advantages for you

Contributing to your child’s pension pot needn’t be a completely altruistic endeavour. It provides an outlet for any extra money you have for the tax year that you’d rather not be taxed on.

Contributions can also help reduce any possible future Inheritance Tax bills as long as they fall under one of the normal exemptions or after seven years if a standard one doesn’t apply.

The maximum you can actually contribute though is limited by your child’s pension tax relief – the lower amount between their salary and £40,000.

Helping families build a solid financial foundation

We love working with families to support their shared financial planning goals. Any time a parent’s assistance can mutually benefit themselves and their child is a win-win in our book. So, if you’re curious about the options available to you and your family, don’t hesitate to reach out and schedule time with one of our advisers.

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Dental and Medical Financial Services is an appointed representative of Best Practice IFA Group Limited, which is authorised and regulated by the Financial Conduct Authority. Company registered in England no. 9158580 Registered office: 1 Market Square, Horsham, West Sussex, RH12 1EU

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