Article by Ewan King
A quick budget review
Yesterday saw the fourth budget from the current Chancellor of the Exchequer – The question is what does this mean to you?
As a family with young children you may be facing a peak in costs. If one parent is at home, household income is likely to be lower. Or with both parents working, you will have childcare costs to fund.
In February 2013, a survey on financial efficiency showed that more women than men were setting a budget, selling things online they no longer needed, or making the most of loyalty cards. But when it came to making the most of tax breaks (e.g. with an ISA or pension) more men than women were taking action.
Measures which support families in saving more overall are therefore welcomed. 2013 has seen a variety of government measures which affect families in this position, both in today’s Budget and also earlier in the year.
Childcare changes in 2015
Working families struggling to meet childcare costs will get a welcome £1,200 a year boost from the Government. The new scheme will open up tax relieved childcare for the 2 million families who are unable to access the current employer linked scheme.
From 2015 they will get 20% tax relief on savings used to purchase childcare vouchers up to a maximum of £6,000 for each child under 5 years old. And the savings could even be recycled into a pension contribution which could help to reduce the tax charge on child benefit.
I will admit that it would be even better if these changes could be brought in to effect even sooner.
Keeping child benefit
A pension contribution is more than a tax efficient way of saving for retirement – it can also help to retain child benefit.
Child benefit is worth £1,752 every year for a family with 2 children. This is at threat if either parent has annual income in excess of £50,000. It will be lost altogether if this figures rises above £60,000. A pension contribution is one way to keep child benefit in the family. For example, for an individual on income of £60,000, a pension contribution will reduce this figure to £50,000 at a net cost of only £6,000 – and they’ll get the child benefit back.
Child Trust Funds and Junior ISAs
Following consultation announced in today’s budget, legislation is likely to be introduced to allow existing Child Trust Funds to transfer into Junior ISAs (JISAs). An important note to take is that a child with a CTF is not currently allowed to have a Junior ISA.
The maximum contribution that can be made to JISAs is £3,600 every year from birth to 18 and is a valuable allowance. If maximised, it could grow to around £85,000 (assuming growth of 3% a year) over the 18 years. And the child would be entitled to their fund at 18. Too much too soon? Certainly in the view of some parents. While it would be useful towards university costs, it could end up being used less wisely.
The lack of control over hard earned savings could be a worry for many parents, who may prefer to provide for their children’s future using an investment in trust.
The personal allowance
This is some great news for low earners. In simple terms the amount of income you need to earn before you have any tax to pay will increase to £10,000 from the 6th April 2014, however the basic rate tax limit is being reduced to £31,865.
I appreciate that the 6th April 2014 is just over 12 months away so in the meantime here is what is happening next tax year – The personal allowance for the 2013/14 tax year is £9,440 (up from £8,105 for 2012/13), at the same time the limit for basic rate tax reduces from £34,370 to £32,010.
If you would like seek advice on any of the above, or perhaps you would like a financial review then please feel free to contact me on 0114 3030678. You may also want to have a look at our website www.madisonwealth.co.uk
By Ewan King.
Madison Wealth Management are a fully independent advice firm based in Sheffield, we are not tied to anyone product or company. We can build plans to suite most family’s budgets. We work with clients all over the country and are always happy to have a discussion over the phone. You can also email me directly on email@example.com.
Find me on Twitter https://twitter.com/MadisonWealth
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