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.
Did you know that between childcare/babysitting, schooling, food, clothes, toys, holidays, and everything else associated with raising a child from infancy to adulthood, your child-rearing journey could cost well over £200,000?
Childcare and education make up the two biggest chunks of this number, hovering around £70,000 each.
While these figures include university, they don’t account for private schooling, which could add anywhere from £140k (for day schools) to £260k (for boarding schools).
All these expenses – from the little things like pocket money to the big-ticket items like school – add up.
Here are a few ways you can help curb the costs of raising a child so you can enjoy their company without any worries.
Savings & Bonds
Short term savings accounts and bonds are a viable option to help you save money; some banks and building societies even let you open an account for your child from birth, allowing a few extra years of interest building.
For basic rate taxpayers, the first £1,000 of interest that you earn from savings is tax free, while the first £500 of interest is tax free for higher rate taxpayers. Earners bringing in over £150,000 unfortunately have no personal savings allowance. Opening up the personal tax free allowance (on top their basic rate tax allowance) to children lets you save even more on taxes in their name.
Adding parental involvement complicates matters a bit – if income produced from these accounts totals over £100 a year, or £200 if the parents jointly invested, it gets added to the parent’s taxable income. This rule does not apply to grandparents though, so don’t hesitate to bring your mum and dad in on the savings venture.
Junior ISAs
Junior Individual Savings Accounts provide long-term, tax-free savings for children. The maximum annual contribution amount for the 2018/19 tax for Junior ISAs is £4,260. Even if the account is in the child’s name, the funds deposited into the account can’t be withdrawn until their 18th birthday.
You don’t pay tax on income generated from the accounts as long as both you and the child are UK residents. These earnings also have no bearing on whether or not you can receive benefits or credits.
Important note: You cannot have a Child Trust Fund and Junior Cash ISA at the same time – you can transfer the balance of one to the other, but you must choose one investment over the other.
Child Pensions
By investing in a pension in your child’s name, basic rate tax relief will be applied to your contributions.
Your child won’t be able to withdraw any money until they reach the age of 55, but you can continue to add £240 per month or £3,600 a year (with tax relief taken into considerations) to the child’s pension.
Trusts
You can choose from a family trust fund, a unit trust, or an investment trust to help in your quest for child related tax relief. If you wish to provide income for a child that may not be able to look after their own estate, you can use a family trust to house any money you’d like to leave for them.
Unit and investment trusts are crowdfunding initiatives where multiple investors combine their buying power to get access to a wider variety of assets, diversify their shares, and reduce the risk of playing the stock market. The dividends produced through this type of investing opens up another allowance – the dividend allowance – adding another £2,000 annually you can save tax free.
For help determining which avenue to pursue for child-related tax relief, get in touch with us today.
The experts at Dental & Medical Financial Services will evaluate your finances, taking into consideration your personal circumstances so we can provide a plan that works for you.
Working with a professional often makes the difference between failure and success, and with a million decisions you already face as a parent, you should be able to lean on the experts to help you thrive financially.