Starting a family? Get your finances on track

There’s a lot to think about when you’re expecting a new baby. Exciting preparations for your little one’s arrival, such as decorating the nursery, buying prams and other necessities, and selecting new clothes and toys, can make for a long to-do list. Amid this whirlwind of activity, financial planning can easily get forgotten. However, while it might not feel like the most interesting of tasks, it’s definitely one of the most vital and certainly should not be put off.   

Assess your needs

Raising a child to the age of 18 is expensive and with young people now often living with their parents well into their 20s and even their 30s, it’s becoming an increasingly costly business. Take some time to consider what your outgoings will be, factoring in expenses such as childcare and school fees. You may also need to modify your plans to account for a reduced household income if, for example, one parent plans to be a stay-at-home parent. 

Save, save and save some more

Before starting your family, it’s wise to open a savings account to accumulate the funds you’ll need to cover your initial expenditure and provide you with extra funds during the months following the birth, when new parents typically take a hit to their income. Making a concerted effort to pay off any existing debts will also help to take the strain off your finances once your baby has arrived and will save you money in the long run. 

Think ahead

While it’s tempting to concentrate solely on raising funds to meet your short-term costs, there are a number of financial planning decisions you should also be considering that will make life easier in the long term. With a brand-new family member to look after, you may need to think about reviewing your protection policies, drafting a new Will, or opening a savings account (such as a Junior ISA) in your child’s name. You could even consider paying into a private pension on your child’s behalf, although they wouldn’t be able to access this until they are 55 under current legislation.

Here to guide you

Whether you’re considering parenthood or already have a new baby on the way, it’s a good time to take stock of your financial situation. We can review the current state of your finances and put plans in place that will help you towards a secure future for yourself and your growing family. 

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years.  Tax advice with no investment element is not regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate Will Writing or taxation and trust advice

How Clive and Sarah were able to pay for a new kitchen and help their son onto the property ladder

Clive and Sarah are a retired couple with no savings. They asked us to see how they could find the money they needed for a new kitchen and to help their son get on the property ladder.

The couple are retired and in their early 70s. They live in a three-bedroom, semi-detached house in a beautiful, tree-lined street on the outskirts of York. After working hard for many years, Clive as a warehouse manager and Sarah as a supermarket cashier, they had managed to pay off their mortgage some years ago and are enjoying their retirement.

A lifetime home

The couple bought their home when they got married in their late 20s, at a cost of £8,600. Not a lot in today’s terms, but mortgage repayments were a stretch for them in 1977 and even more so when Sarah stopped work for a few years when their son, William, was born in 1978. Their property is now valued in the region of £300,000. They love their home and have no plans to move but would like to do some improvements to make things even more comfortable at home.

A helping hand for their son

Clive and Sarah dearly wanted to be able to help their only son and his young family onto the property ladder. William is 42, works as an NHS nurse in central York and has been renting for years. He hasn’t been able to save a deposit for a property and he and his family felt trapped in rented accommodation.

Equity release as a solution

Our specialist adviser discussed Clive and Sarah’s situation and recommended a lifetime mortgage, which allowed them to release a lump sum of £100,000 from their house. From this, Clive and Sarah spent £22,000 on their new dream kitchen and £13,000 on a climate-controlled conservatory. This left £65,000 to give to William. 

Benefits for Clive and Sarah

Taking £100,000 out of the value of their home enabled Clive and Sarah to have the home improvements they wanted. In addition, the value of their house is likely to have increased as a direct result of making the improvements. Their lifestyle in retirement remains the same as before, as the lifetime mortgage does not require repayments. The interest charged builds up and is repaid at the same time as the lifetime mortgage. This will happen when they eventually move into a care home or pass away.

A brighter future for William

They were able to give William a substantial deposit to put towards his own home. A larger deposit means he was able to get one of the best mortgage rates available and his monthly mortgage repayment is less than the monthly rent he was paying. This means he now has money for things like family holidays and savings.

As the lifetime mortgage has reduced the value of Clive and Sarah’s house, William is now likely to inherit less when they die, but he will still benefit from any growth in the value of his parents’ home.

Book a review of your finances

To book a no obligation initial consultation, which will take place by phone, call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

 

The initial consultation is designed to discover whether or not you would benefit from financial advice and there is no obligation on either side to proceed further. Any advice related fees will be clarified with you before any commitment to proceed.

* We have changed real names and other details to preserve anonymity. All financial details reflect the circumstances.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.

How we helped Claire get her financial well-being back on track

In these challenging times we are all facing growing demands on our time and energy, which can have knock-on implications for our finances. Taking financial advice now can make the difference between just about managing and having a more comfortable life and in due course enjoying the retirement you deserve.

Take Claire, a 48-year-old supermarket employee from Bristol. She works full-time and has two children at school. In addition to being a parent, she also spends time looking after her ageing mother who is in the early stages of dementia. Claire earns enough to cover her monthly outgoings, but not much is left at the end of the month, especially now she is unable to work overtime due to her increased caring responsibilities.

Prioritising you

“With increasing demands on my time, energy and money, I‘ve been struggling to think about my finances. I’ve been concerned that I don’t have life insurance and I haven’t really thought about retirement or reviewing my mortgage. Meeting my adviser, Tom, set me on the right path. He assessed my finances and helped me set realistic financial goals, enabling me to feel in control. Taking out financial protection was much more affordable than I expected. My policies cover death and critical illness, and provide an income if I’m unable to work, protecting my mortgage payments. Having them immediately gave me peace of mind in these uncertain times.”

TIP

With family members young and old depending on your support, it’s vital to have the right sort of protection policies so if an unexpected event occurs, a policy would pay out to help ease the financial burden.

Mortgage savings

“Tom checked my mortgage; I hadn’t realised that the rate I was on wasn’t very competitive. As my fixed term came to an end a while ago, I was able to switch to a better rate. The savings I’ve made have enabled me to top up my savings each month, pay the protection premiums and top up my pension.”

Retirement reality

“As far as my retirement is concerned, I have a pension with my current employer to which I contribute. I also have pensions from previous employers but didn’t know what these were invested in and how much they were worth. Tom found out their value and whether they were invested in a way that is suitable for me. He talked me through the types of pensions I have – I now understand the differences between defined benefit and defined contribution schemes. I know how much my pensions are worth and the importance of paying in more when I can, so I can enjoy a more comfortable retirement.”

TIP

Even if it seems like years away, you need to save for your retirement, so find out about your pension. It’s important to know how much it’s likely to be worth, so that you can make plans to save more if you need to.

We can help

In these challenging times we are all facing growing demands on our time and energy, which can have knock-on implications for our finances. Taking financial advice now can make the difference between just about managing and having a more comfortable life and in due course enjoying the retirement you deserve.

Book a no obligation initial telephone consultation

To book a financial review (which will be conducted over the phone) with one of our professional financial advisers call 08000 85 85 90, email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

 

The initial consultation is designed to discover whether or not you would benefit from financial advice and there is no obligation on either side to proceed further. Any advice related fees will be clarified with you before any commitment to proceed.

* We have changed real names and other details to preserve anonymity. All financial details reflect the circumstances.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Budgeting – a key part of your financial well-being

If you are worrying about your finances during this difficult time, you’re certainly not alone. A good way of gaining a better understanding of your current financial position is to sit down and list your household’s current income and expenditure – remember this is likely to have changed as a result of the coronavirus pandemic.

There is a simple way of managing your finances. Creating a budget will help you get a grip on your income and outgoings, giving you a better understanding of where you could be overspending. You might be shocked to find how much you’ve been spending on takeaway coffees or lunch at work each month!

If you’re losing sleep over your finances, then our easy budget checklist is the perfect way to get started and boost your financial well-being.

TOP TIPS

Start with the important things

Make sure you’ve got your basic needs covered before budgeting for days out or new clothes, for example. Once you know you’ve got enough to keep warm, well fed and a roof over your head, and calculated what you can afford to save, you can budget for some of the more fun things in life, remembering not to neglect savings and pension contributions.

Adjust your budget each month

No month is ever the same and some can be much more expensive than others. Your budget is there to be adjusted, so that you can put more money aside during less expensive months. That way, you can afford to splurge out on events like Christmas, birthdays and holidays without worrying.

Where can you cut costs?

Look at your outgoings – are there any items you can reduce or eliminate?

Income (monthly)

Wages/salary £ ……………………..

Wages/salary (partner) £ ……………………..

Benefits £ ……………………..

Money from other sources £ ……………………..

Other £ ……………………..

Total income £ ……………………..

Outgoings (monthly)

Mortgage/rent £ ……………………..

Ground rent/service charges £ ……………………..

Buildings/contents insurance £ ……………………..

Life insurance £ ……………………..

Pension contributions £ ……………………..

Savings £ ……………………..

Council Tax £ ……………………..

Gas £ ……………………..

Electricity £ ……………………..

Water £ ……………………..

Food/housekeeping £ ……………………..

Travel (including car/petrol costs) £ ……………………..

Phone £ ……………………..

TV licence/rental £ ……………………..

Clothing £ ……………………..

Prescriptions/health costs £ ……………………..

Subscriptions £ ……………………..

Entertainment/eating out £ ……………………..

Other £ ……………………..

Total outgoings £ ……………………..

My total income is £ ……………………..

My total outgoings are £ ……………………..

This leaves me an available income of £ ……………………..

 

We can help

We can help get your finances on track whatever your circumstances. To book a telephone financial review with one of our professional financial advisers call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

 

The initial consultation is designed to discover whether or not you would benefit from financial advice and there is no obligation on either side to proceed further. Any advice related fees will be clarified with you before any commitment to proceed.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

Coping with the financial impact of coronavirus

The coronavirus pandemic has quickly changed the way we live our everyday lives and, while the main concern is safeguarding people’s health, many are already feeling the financial impact of the situation.

Having a degree of financial certainty can alleviate some of the stress you may be feeling. We can help you and your family understand the financial impact of the pandemic and recommend action you could take. Here are some of the issues with which we may be able to help:

  • What is a mortgage holiday, are you entitled to one and if you are, should you take advantage of it?
  • Are you paying too much for your mortgage? With interest rates at an all-time low, could you save money by re-mortgaging?
  • Do you need to access your savings? If your money is locked away for a fixed length of time, you will be pleased to know that you may be able to access it without having to pay the normal penalties.
  • However, if you have money in fixed rate accounts it might be best not to take any out if you can possibly avoid it. As you will know, interest rates have fallen and the chances are you will be earning a higher rate of interest than is currently being offered.
  • If you have life insurance and income protection insurance, the good news is that they are likely to pay out if you do need to make a claim due to coronavirus. It is still possible to take out life insurance and income protection policies, although you will be asked questions such as whether you have had COVID-19 or tested positive for it.
  • If you are a member of a traditional, public sector defined benefits pension scheme the good news is that your pension income remains guaranteed.
  • If you hope to retire in the next year or two and have defined contribution pension schemes (most private sector pension schemes are now defined contributions, as are all personal pension plans, including SIPPs), you are probably worried that the value of your pension pot will have fallen. Remember, you may have other pension pots from previous employers. A professional financial adviser will be able to check that your funds are invested appropriately and recommend changes if they aren’t.
  • If you are more than five years away from retiring, it is probably best to leave your defined contribution pensions as they are, assuming that you have already taken financial advice about the way they are invested, and sit out the crisis in the hope that values will rise again.
  • If you are already taking your defined contributions pension via what is known as drawdown you should assess whether you need to reduce the amount of regular income you take. If you are taking out more than the 3.5% a year recommended by the Institute and Faculty of Actuaries1, you should consider taking out less, hopefully just for the short term. Maybe you have other savings you could use. A professional financial adviser can help you decide on a suitable course of action.
  • If you are being made redundant and are over 55 could this be an opportunity to take early retirement? Whether this is feasible will depend on how much you have built up in various pension schemes and other savings during your working life. A professional financial adviser can help you with the rather complex calculations required to work out whether this is a viable option.
  • People who don’t pay their income tax through the PAYE system and instead file self-assessment tax returns and pay their tax in January and July, won’t be obliged to make the July payment – the government has announced that they can defer paying income tax until 31 January 2021.

Finally, if the family income has dropped, perhaps because you or your partner are no longer able to work you should find out if there may be allowances you can claim. If you are self-employed, could you claim a grant through the coronavirus Self-employment Income Support Scheme? If you are renting and fall into arrears you should explain the situation to your landlord immediately. You are still obliged to pay the rent at some stage, but they may give you more time to pay.

Source:
1. https://www.actuaries.org.uk/system/files/field/document/Policy%20Briefing%20-%20Helping%20Consumers%20-%20WEB.PDF

Book a no obligation initial telephone consultation 

To book your personal telephone consultation, which will take place at a time that suits you, call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

The initial consultation is designed to discover whether or not you would benefit from financial advice and there is no obligation on either side to proceed further. Any advice related fees will be clarified with you before any commitment to proceed.

The value of your investments can go down as well as up, so you could get back less than you invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Trusts and tax advice which contains no investment element is not regulated by the Financial Conduct Authority. 

Virus dominates Spring Budget agenda

The story of the Spring Budget 2020 has been long and complicated, with further measures likely in the coming months in response to unfolding events. The Budget was originally scheduled for delivery on 6 November by former Chancellor of the Exchequer, Sajid Javid, as his predecessor Philip Hammond had moved the annual occasion from spring to autumn.

With the 12 December general election announced shortly before Budget Day, a delay was inevitable and the new date chosen was 11 March; but on 13 February Mr Javid resigned unexpectedly and deputy Rishi Sunak was appointed Chancellor. With little time to prepare, Mr Sunak faced exceptional challenges: not just Brexit but also the developing threat from COVID-19, which spelt disaster for struggling UK airline Flybe.

Pre-Budget rate cut

Support measures began ahead of the Budget speech. Firstly, the three waiting days to qualify for Statutory Sick Pay (SSP) were axed to help keep COVID-19 from the workplace. Then, on Budget Day morning, the Bank of England announced a cut in its base rate, from 0.75% to 0.25%, and a new Term Funding Scheme to encourage lending. So, even before Mr Sunak rose to speak, underpinning the economy was clearly on the agenda.

Asserting that ‘’we will get through this together’’, the Chancellor outlined a £30bn fiscal stimulus package. This included a £5bn emergency response fund for the NHS and social care services, plus a £1bn Coronavirus Business Interruption Loan Scheme to assist affected firms. Business rates would be suspended in 2020-21 for retail, leisure and hospitality firms with rateable values under £51,000; many smaller businesses could qualify for £3,000 cash grants and SSP refunds.

National Insurance threshold rises

Whist the £12,500 personal allowance for Income Tax and the £50,000 higher-rate threshold are unchanged for 2020-21 in UK nations where the tax is not devolved, the National Insurance threshold rises from £8,632 to £9,500 UK-wide. The new State Pension rises 3.9% from £168.60 weekly to £175.20 and the older basic pension from £129.20 to £134.25. There is a £90,000 uplift to tapered Annual Allowance thresholds for pensions; and the Lifetime Allowance rises with inflation to £1,073,100. 

On matters affecting investors, the £20,000 ISA allowance (and £4,000 Lifetime ISA allowance available within it) remains unchanged for 2020-21, but the Junior ISA and Child Trust Fund annual limits rocket from £4,368 to £9,000. The annual Capital Gains Tax exemption increases from £12,000 to £12,300 (£6,150 for trusts). However, Entrepreneurs’ Relief on eligible gains is cut from £10m to £1m, effective 11 March 2020.

Virus forces £350bn post-Budget measures

The post-Budget week saw coronavirus cases escalate and economic prospects worsen, as the public were advised to avoid pubs, restaurants and other places of social contact. On 17 March, Mr Sunak announced urgent measures to help firms and individuals through the crisis. His plan included £330bn in loan guarantees and £20bn in other support, with grants for firms in worst-affected sectors, more business rates holidays and possible help for airlines and other transport operators. A three-month mortgage holiday was promised for strapped homeowners, with help for renters also on the radar. On 18 March, the pound fell sharply against the US dollar and euro.

Mr Sunak said he would take further action if necessary in the ensuing weeks and the general expectation was that more would indeed be required.    

Written on 18th March 2020. 

Future-proofing your wealth

Here are some of the wrappers and allowances that can help reduce the various taxes you, and possibly your parents and children, will pay now and in the future.

There are numerous ways of legitimately reducing the amount of tax you pay now, and in the years ahead, including the amount of inheritance tax likely to be due when you die. Most involve putting money in a tax-efficient “wrapper”, such as a pension or investment bond. Here we look at a few that are commonly used in sensible financial planning.

ISAs: no income or capital gains tax to pay

If you have savings or investments you should probably be holding them within one or more ISAs, making use of your personal allowance each year if possible. If they can, your partner should also make use of their allowance. A huge range of investment funds are available and it is important to choose ones that meet your circumstances and objectives.

Investment bonds: withdraw up to 5% a year

Investment bonds are provided by life assurance companies. A lump sum is paid in to the policy and can then be invested in a wide choice of investment funds. You can withdraw up to 5% of the amount you invested each year with no tax to pay until later. You can carry any unused allowances over to future years if you so wish. The idea is that the investments should grow each year by at least the amount you are withdrawing. However, you need to make sure that they are suitably invested. There should be no tax to pay when you cash in the bond unless you are a higher or additional rate taxpayer at that time.

Investment bonds can be a useful way of investing money if you expect to be a lower rate taxpayer later in life, for instance when you retire. Another advantage is that it is usually possible to give some or all of the bond away, for instance to people who pay little or no tax, such as your grandchildren.

Using inheritance tax exemptions

Each year you can give away up to £3,000 exempt of inheritance tax. Any part of the exemption not used can be carried forward to the following tax year. You can give away as much as you want to whoever you want and, so long as you live for at least a further seven years, the gift doesn’t count towards inheritance tax.

In addition, the government now allows money in pensions funds to be passed on free of inheritance tax. You can pass it on to whoever you wish by completing an “expression of wishes” form with your pension provider. Depending on how old you are when you die, your beneficiaries may have income tax to pay on money they withdraw from your pension. This means that for some people it can be preferable to take retirement income from other sources before taking it from their pension fund.

We can help

Part of our role as professional financial advisers is to make sure that your investments are as tax-efficient as possible. To book a no obligation initial consultation call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

The initial consultation is designed to discover whether or not you would benefit from financial advice and there is no obligation on either side to proceed further. Any advice related fees will be clarified with you before any commitment to proceed.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice with no investment element is not regulated by the Financial Conduct Authority.

How Peter and Jane will be able to help their sons with university costs

Whatever you are saving for – your wedding or to help your children through university – it is important to have a clear financial plan that can help you achieve your goals. Here is how we helped Peter and Jane.

Peter, who is in his late 40s, works as a senior engineer at a major power company. He earns a good salary, as does Jane, his wife, who is a few years younger than him and is head of science at their local secondary school. 

Financial seminar

Peter happened to see one of our financial planning seminars advertised at work and signed up. The seminar gave him a good overview of what to think about in terms of general financial planning, covering topics ranging from savings and pensions, to retirement planning. He realised that he and Jane needed to have a proper financial plan and so he booked a financial review with one of our advisers.

“I was relieved when Stuart immediately set us at ease. He asked what had prompted us to see him and a few questions about our income, expenditure, work, family and financial goals.

“We explained that we would like to use the money to help our children through university – the eldest will be going in three years’ time and the youngest in five. We also wanted to help them get on the property ladder in due course.”

Little left over at the end of the month

Stuart takes up the story. “Both Peter and Jane have, very sensibly, been topping up their pensions, and, all being well, are on track for a comfortable retirement. They have a bit of emergency money in a cash account but otherwise have little in savings. They are keen to maintain their current, active lifestyle while the boys are still at home, with a skiing holiday in the winter, a beach-based activity holiday in the summer and plenty of days out and city breaks in-between. This leaves them with next-to-no spare cash at the end of each month.

Equity in the family home

“They had bought the family home around 13 years ago when their second son was born. Thanks to the increase in value combined with 13 years of mortgage repayments, they now have a fair amount of equity in their home. I therefore suggested that when their first son goes to university they could buy a small property for him to live in (possibly rent-free) and rent out the other rooms to fellow students. I explained that the cheapest way of funding the purchase would be to remortgage the family home. I said that I would explain the various tax consequences of buying the property, and of possibly transferring it to their sons’ name at some future date.

TIP : You can withdraw funds from your ISA and if you replace them during the same tax year the replacement funds won’t count towards your ISA allowance for that year.

 

Likely to exceed the lifetime pension allowance

“I also suggested that they both stopped topping up their pensions. Jane is clearly a high flyer and could be close to exceeding the lifetime allowance for pension savings by the time she turns 50. Peter is fortunate enough to probably be in a similar position by the time he turns 55. I recommended that instead they put the money into ISAs (one each), invested in funds aligned to their attitude to risk and that aim to give a reasonable return over five-to-ten years. This should enable them to build flexible nest-eggs, with no tax to pay when they withdraw money. In due course they could use the money for whatever they want, for instance, as a deposit on a property for their younger son, treating themselves to the holiday of a lifetime when they retire, or even to generate additional retirement income.”

Financial review

This is just one of the ways we can help. Everyone’s circumstances and goals are different. To find out how we may be able to help book a review with one of our professional financial advisers.

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice with no investment element is not regulated by the Financial Conduct Authority. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

* We have changed real names and other details to preserve anonymity. All financial details reflect the circumstances. 

Make tax-efficiency a family affair

Making the most of tax-efficient opportunities in the context of the wider family – from children through to grandparents – can make a significant difference over time.

Here we explain a few of the ways it might be possible to take advantage of the allowances and opportunities the government has created for family units.

Use both sets of allowances

As each person is taxed separately, make sure that you and your spouse or civil partner are making best use of both your personal allowances, plus both your basic rate tax bands, savings allowances and dividend allowances.

For instance, putting savings plans in the name of the lowest earner may enable the higher earner to pay less tax. Such transfers must be outright gifts and must be completed by 5 April to count for the current tax year.

Do you pay high income child benefit charge?

If you have children and your or your spouse’s or civil partner’s income is more than £50,000 you may have to pay the high income child benefit charge. To retain the full allowance you could consider making additional pension contributions in order to keep your taxable income below this threshold. Alternatively, you can elect to stop receiving child benefit.

 

TIP : Could you keep each parent’s income below £50,000? If one income is just above the threshold, maybe they could consider paying a bit more into their pension to reduce their taxable income. If both parents’ income is £50,000 or less, the household can receive full Child Benefit.

 

Saving for children

Did you know that children have their own allowances and tax bands? This can be helpful if you want to give money to your children or grandchildren. There are also a number of tax-efficient ways of saving for children.

For example, Junior ISAs are available to children under the age of 18 who live in the UK and do not have a Child Trust Find. Parents, other family members and friends can pay in up to £4,368 in the current tax year. They can pay the same amount in to a Child Trust Fund (a similar account which preceded Junior ISAs). Also, it is possible to transfer Child Trust Funds into Junior ISAs, which can give more choice and flexibility in terms of investment options. 

TIP : Could grandparents or other relations pay directly into a child’s savings account? This is likely to be more tax-efficient than a parent paying in or the money going via the parent.

 

Strange as it may sound, setting up a pension for a child is another useful tool for family financial planning. Up to £2,880 a year can be paid in to a child’s pension each year and, as it qualifies for tax relief, this is topped up to £3,600 by HMRC (or the equivalent if a lower amount is paid in). Not only does this give the child a head start in the funding of their pension, it also enables grandparents to pass on money without the beneficiary being able to access it for a good few years. Of course, third parties can contribute to pension schemes of people of any age, (not just children) within the annual limits.

While it makes sense to make your finances as tax-efficient as possible, a decision should rarely be made on the basis of tax alone – it must also make sound financial sense and you should always take professional financial advice before acting.

Tax and divorce

There can be significant tax consequences when you separate or divorce. Often assets such as the family home or share of a pension fund are transferred between spouses or civil partners. The timings of these transfers needs to be carefully thought through in order to avoid potentially costly tax consequences.

If an asset is transferred between spouses or civil partners up to the end of the tax year in which marital separation occurs no capital gains tax is payable. However, if the transfer takes place after the end of the tax year of separation, capital gains tax may be payable.

Book a review of the family finances

To book a review of the family finances with one of our professional financial advisers call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation. Tax advice with no investment element is not regulated by the Financial Conduct Authority.

Act now to make your finances more tax-efficient!

The current tax year ends on 5 April 2020, so you need to act now to take advantage of the various allowances the Government gives us each tax year to ensure we do not pay more tax than we need to.

The Government gives us a number of allowances each year, many of which were created to encourage people to save for their financial futures as tax-efficiently as possible. It therefore makes sense to use them if you can. Here we look at how you may be able to reduce the amount of income tax you pay in the current tax year and beyond.

You do not pay income tax on your first £12,500 of income in this tax year, but you are likely to be taxed on income above this amount, at a starting rate of 20%, a higher rate of 40% on taxable income over £50,000 and an additional rate of 45% on taxable income over £150,000.

TIP : Check that any savings you have are in tax-exempt accounts, such as ISAs. If not and you haven’t used your full ISA allowance for the year, consider moving them in to a suitable account before the 5 April.

 

What counts towards your income?

Among other things, the following count towards your taxable income:

• money you earn from being employed

• other money you make, for instance, a second job

• some state benefits 

• most pensions, including the state pension

• rental income, unless you use the rent-a-room scheme

• benefits you get from your job

• interest on savings above your savings allowance.

Taxable income over £100,000?

If your taxable income is more than £100,000 you lose £1 of your personal allowance for every £2 you earn above £100,000. So if you earn £125,000 you lose all your personal allowance – which means that you are taxed at an effective rate of 60% on this tranche of income. However, you will be pleased to know that there are ways you may be able to reduce your taxable income.

How to reduce your taxable income

Not only are pensions a good way of saving for retirement, they also provide significant tax planning opportunities, as the contributions you make reduce your taxable income.

Therefore, if you are likely to lose part or all of your personal allowance, you may be able to retain it in full by paying more in to your pension. Likewise, if you earn more than £150,000, paying more in to your pension could keep your taxable income below the additional rate tax band. 

You can pay up to 100% of your relevant earnings in to your pension each tax year, up to an annual limit of £40,000. If you are already drawing your pension this falls to £4,000. Relevant earnings include income you earn by working, but exclude some other income, for instance from pensions, most rental income and dividends.

Finally, you may not realise that you can reclaim higher and additional rate tax on donations you make under Gift Aid.

Optimise your tax now!

To book a financial review with one of our professional financial advisers call 08000 85 85 90 or email appointments@lighthousefa.co.uk or contact your usual Lighthouse Financial Adviser.

Tax advice with no investment element is not regulated by the Financial Conduct Authority.