Top ten tips: Family planning for a better future

Published on Friday 10 April 2009 21:24

EACH week The Scotsman will give you a top ten guide to pertinent financial issues. Busy parents have many duties to juggle but few can afford to neglect financial planning for their family.

Fiona McDonald, associate at Pagan Osborne, offers her tips on how parents can ensure that they maximise their family wealth and minimise tax.

1 CHILD CARE VOUCHERS PARENTS whose employers operate a child care voucher scheme should consider using them. The vouchers, which are free from both income tax and national insurance, can be used towards childcare that has been registered or approved. The maximum an employee can take in child care vouchers per month is 243, although both parents can take this amount if both of their employers operate the child care voucher scheme.

2 HEALTH AND PREGNANCY GRANT This is a new, one-off tax-free payment of 190 for mums to be who are at least 25 weeks pregnant. The grant only came into force on 6 April.

3 CHILD BENEFIT This is a tax-free payment that can be claimed for each child provided they are under the age of 16; over 16 and in relevant education or training; or 16 or 17 and out of education or training but registered for work, education or training with an approved body. Some 20 will be paid per week for the eldest child, and 13.20 a week for each other child. The benefit is not means tested.

4 CHILD TAX CREDIT Parents should check with HM Revenue and Customs to see whether they qualify for child tax credit or working tax credit. The amount of tax credits depends on the number of children, working situation, whether childcare is paid for, whether any child has a disability and income level.

5 CHILD TRUST FUND The Child Trust Fund is a savings and investment account for children. Parents are provided with a voucher for 250 to start their child's account. The account is in the name of the child and cannot be touched until the child turns 18. Interest on the account is earned tax free during this time. Parents can contribute 1,200 in any year between the child's birthdays. The government will contribute an extra 250 directly to children who live in families receiving child tax credit, where the household income is not greater than 16,040.

6 STAKEHOLDER PENSION In addition to contributing to their own pensions, parents can contribute towards a stakeholder pension for their children. Tax relief is available to everyone who contributes to a stakeholder pension and for every 1 that is paid into the fund, HMRC pays an extra 28p. Many parents feel that contributing to their child's pension is an attractive option, given the tax relief.

7 MAKING A WILL All parents should ensure that they have recorded their wishes in their will in the event of their death. Making a will also provides a parent with the opportunity to consider the age at which they would like their child to become entitled to any funds. Without any specific trust provisions, the child would have entitlement at age 16. Making a will is also a useful opportunity to make any specific bequest and record who should act as guardian for a child.

8 LIFETIME TRUSTS Parents can establish a lifetime trust for their children and for tax planning and protection purposes. They can elect who should act as trustees and detail the trust provisions.

9 PLANNING FOR SCHOOL FEES It is never too early to plan ahead for school fees. There are a number of options available in terms of financial products that can be tax efficient. Additionally, many schools offer discounts for fees paid up front which can provide significant savings.

10 GIFTING Parents can gift cash and assets to their children to mitigate the 40 per cent inheritance tax (IHT) charge on estates over the IHT threshold (currently 325,000 per individual). There are various lifetime exemptions, which should be utilised where possible. If a parent does not wish to gift outright to a child, the lifetime trust route can be considered.

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