It could mean helping them buy their first car, providing a deposit for their first home, ensuring they have minimal debt upon leaving university or something else. However, it can be difficult knowing where to start.
The importance of ensuring financial wellbeing
While we may be focussed on giving our children a financial boost early on in their adult lives, it’s important to also remember that the working and retirement landscape they encounter could look very different to that of our own.
Not only that but if you are a parent in your 40s and 50s and are part of the so-called “sandwich generation”, you may also be supporting elderly parents as well as caring for your own children[1].
Ensuring that wealth is spread between generations and your children can enter into adulthood with a financial safety net is something many of us may feel is important. We’ve listed a few ways that may help achieve this below.
Make the most of tax-free allowances
Before tax year-end we always like to remind our clients of their tax allowances and work with them to ensure they’re being maximised.
An ISA is a good first port of call
An Individual Savings Account (ISA) allows you to save up to £20,000 (2023/24) This means you can put up to £20,000 into an ISA per tax year and you won’t pay tax on the interest, income or capital gains. There are a few different types of ISA:
- Cash ISA
- Stocks and shares ISA
- Innovative finance ISA
- Lifetime ISA
You can save up to £20,000 in one type of ISA or split the allowance across some or all of the other types. However, you can only pay £4,000 into your Lifetime ISA in a tax year[2].
Open a Junior ISA
As well as a regular ISA, you can start a savings pot for your child by opening a Junior ISA (JISA) for them. JISAs can have up to £9,000 paid into them per tax year.
Your child won’t be able to access it until they’re 18. After that, it will turn into a regular ISA which they can continue to save into. Introducing the concept of saving money early could help build healthy financial habits for later on.[5]
Set up a Junior Pension
Did you know that as a parent or legal guardian, you can set up a Junior self-invested personal pension (SIPP) for a child from when they’re born? This is a great tax-efficient way to save for your child with a pot that can grow from early on in life, not just from when they start working.
You can contribute a maximum annual amount of £2,880, which will become £3,600 through the Junior SIPP’s 20% tax relief scheme[3]; this is a fantastic way to make the most of compound interest from a young age.
Your child will be able to have control over their Junior SIPP once they turn 18, although withdrawals aren’t usually permitted until they reach the required retirement age set by the government. This currently stands at 55 and will change to 57 from 2028[4].
Changes to the Capital Gains Tax exemption
It’s worth noting that the annual Capital Gains Tax exemption is reducing in 2024/25 to £3,000 – down from its current amount of £6,000.[6]
If you are considering the sale of property or other assets as a way to pass money on to other family members, it may be a good idea to speak to a financial adviser regarding this before tax year-end.
Ultimately, if you’re wanting to help your children have a great head start in life financially, making sure you’ve made the most out of your tax allowances before year-end is a great way to do this.
