Give your children a head start this tax year-end

At a glance

If you’re part of the ‘sandwich’ generation, with responsibility for a young family and elderly parents, you can feel pulled in every direction financially.

Making the most of tax reliefs and allowances now can really help take the pressure off, and get you in a good position to meet your short-, medium- and long-term lifegoals.

Today’s teenagers will have very different career paths to many of us and may carry student debt for several years. Giving them a financial head start could make a huge difference to their lives.

When you’re in your 40s, you can sometimes feel like you’re planning the finances for three generations, not just one. Many people find themselves caught in the ‘sandwich’ generation, responsible for both their children’s future financial wellbeing and the wellbeing of their parents in later life. At the same time, you may also be thinking about making the most of your investments so that you’ve got enough money to enjoy your own retirement.

“Your priorities change over time, especially when you’re working out how to balance your own financial wellbeing with that of your children’s in the future,” says Tony Clark, Senior Propositions Manager at St. James’s Place.

It can feel like you’re spinning plates.

Are you using all your tax allowances?

With so many calls on your money, it makes sense to take advantage of the tax allowances that are right in front of you.

Even the ones we’re most familiar with, such as the annual £20,000 ISA allowance. Creating a detailed financial plan that covers both your short-term needs, and your longer-term life goals, is all about understanding how much you’ll need, and when you’ll need it.

ISAs are a simple and tax-friendly way to get started if you haven’t already. Cash ISAs make a good, tax-efficient home for rainy-day funds, and Stocks & Shares ISAs can provide the potential for growth from your investments to help achieve your longer-term ambitions, from buying a new home to affording a great education for your children.

Tax-efficient savings could help your loved ones with long-term care costs; taking a weight off their mind, and yours.

Giving your children a tax break too

When it comes to giving your children a head start, opening a Junior ISA for them means they can build up a tax-efficient pot of money. They can either access that at 18, or roll it over into a standard ISA, and continue to save. It could make all the difference to them getting their first mortgage.

“You might also be thinking about helping them get into university, deal with student debt or get on the property ladder,” says Clark. “Today’s teenagers may face working and retirement lives that are very different from our own, so giving them a practical, financial head start can really help when they start building their own careers and lives.”

How pension tax relief can help

Pension tax relief can make a significant difference to the amount of money you can save for later life, particularly if you start early.  And any parent or legal guardian can open a children’s pension from the moment they’re born. You can put up to £2,880 a year into their pension, and the 20% pension tax relief bumps this up to £3,600.

While this might not be front-of-mind when you’ve got a young family, the tax benefits on pensions mean that even quite small amounts paid in regularly every month can mean your children will be able to do things they’ll dream of doing, when they reach your age, and older. 

“Giving them a leg up in their adult life as well as setting something up for later in their lives can really open up their choices when they begin to approach retirement,” says Clark.

Making the most of Capital Gains Tax

People often forget about the annual Capital Gains Tax (CGT) allowance too, which can also make a big difference to your investment growth. CGT is the tax that you pay on the profits if you sell a property or asset that has increased in value. The current 2022/23 Tax Year CGT allowance means that the first £12,300 of profit is tax-free. Next tax year, this allowance will drop to £6,000 and then down to £3,000 in 2024/25.

The amount of CGT you’ll pay depends on your tax band and the asset you’ve made a gain on, and it’s well worth taking financial advice on this, as it is a complex area of tax planning. But a very useful one, especially as your assets tend to build up as you get older.

Taking financial advice will keep you ahead of the game

Most of the tax allowances and tax reliefs you can claim are on a use-it-or-lose-it basis, so planning ahead is important. With tax-year end coming up fast, checking in with us will help make sure you don’t miss out.

“If you’re thinking about moving money around, or splitting your money, have a chat with your adviser,” says Clark. “You might be thinking about using both a Junior ISA and a children’s pension to give your children a really good start in life.”

“Talking your options through with an expert who understands your short- and long-term goals will help you feel confident about the choices you’re making for your children.”  Clark adds.

“It can really help you see the bigger picture.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Cash ISAs are not available through St. James’s Place.

SJP Approved 30/01/2023