A Right Royal Welcome
23 July 2013
The arrival of the new Prince of Cambridge is expected to boost the UK economy by £243 million, and many of us will contribute to that, even if only by raising a glass in a toast to Will and Kate. Congratulations!
The Duke & Duchess of Cambridge are unlikely to have any concerns regarding the financial security of our future King but, for the rest of us, the arrival of a new baby, whether you’re a parent or a grandparent (or even a godparent) is an event which should prompt a review of financial and legal arrangements.
So, what should you be thinking about?
- Tax Free Personal Allowance – don’t forget that children have an annual tax free personal allowance, currently £9,440. This can usefully cover income from investments (see below), and produce tax repayments.
- Money from family – many banks have specific children’s accounts, usually with a higher rate of interest, for investing gifts from family members. Interest can be earned tax free where your child is not using their personal allowance. However, if £100 or more of income is produced from capital gifted by a parent, then that income is assessable on the parent and not the child.
- Shares - can be held on behalf of children, either in trust (below) or directly. Dividends come with a tax credit attached so there will be no additional tax to pay for basic rate tax payers, allowing for net dividend income of up to £37,305 (£41,450 gross) with no further tax liability.
- Trusts – can be useful for holding investments for children until a specified age, whilst keeping the income under the control of the trustees. Although the trust will pay tax itself, any money paid out comes with a tax credit attached, potentially creating a repayment for the child (but note that the £100 rule still applies where parents settle funds).
- Junior ISAs – replacing the old Child Trust Funds, any child not eligible for a CTF can now hold a Junior ISA. Anyone can pay into the ISA up to a maximum of £3,720 per year. The money is locked in until your child turns 18 meaning that the interest generated is not subject to the £100 rule.
- Pensions – kick start your child’s pension early by investing up to £3,600 gross per year (£240 net per month) on their behalf. Pension rules allow anyone to start a pension for a child immediately after birth.
- Premium bonds – can be held on behalf of children. Grandparents and parents/guardians can invest up to a maximum of £30,000 and any prizes are tax free.
- Tax credits – are you claiming everything you’re entitled to? We don’t deal directly with Tax Credits, but HMRC have a useful tool on their website for calculating any credits due, and we’d be happy to point you in the right direction.
- Child Benefit - can be claimed for each child, but take care – if either parent’s income is over £50,000, the benefit will be clawed back through their tax return.
- Wills – are your Wills up to date to include provision for your children?
- Life cover – would your family manage without your income? If not, is your current life cover sufficient?
- School fees – you could be putting money aside now to cover future school fees. Consider tax efficient investments such as ISAs by parents, or a trust where Grandparents wish to contribute.
- IHT Exemptions – are any family members planning to reduce their estates for IHT purposes? Up to £3,000 per annum can be gifted without any IHT implications and a number of other exemptions are available.
- Property – are you considering purchasing property for your child to use whilst at University? Although profits are taxable, renting creates a source of income until the property is required. Once at University, if the property is in the child’s name, tax reliefs are available for renting out a spare room and on sale of the property.
If you’ve welcomed your own Prince or Princess into the family lately and wish to discuss any of the above, please get in touch with your usual Springfords contact or call 0131 440 5000 to speak to someone who can help.
This is a general guide which is intended to give background information and is not a substitute for taking specific advice based on your particular circumstances.