Savings and investments
for your child's future
One thing most parents want to do is save and invest for their child's
future and as parents of new babies have discovered in recent months,
the advent of the government's Child Trust Fund has encouraged them to
think about it in a more concentrated fashion.
After all, long after your little bundle of joy has shed his baby fat,
discarded his teething ring and forgotten all about his Teletubby DVDs,
he'll be wanting to move on to other toys - like a car. He'll need money
for beer as well as for university fees, trendy clothing so he can impress
the wrong kind of girl and a deposit for a house. Daughters will want
pretty much the same and, you, the doting parent won't want them to miss
out.
The trouble is, having a baby is expensive enough as it is and many parents
don't have the money to spare for these future requirements, frivolous
or not. But what you can do is make sure you are claiming everything you're
entitled to just in case it means you can spare a little to put something
by for your child's future.
All families with children are entitled to one or all of the following
- and that means you - so don't lose out:
Child Benefit
Child Benefit is a tax-free income paid to all parents with children
under sixteen (nineteen, if the child is in full-time study at A-level
standard or equivalent). It is paid every four weeks and amounts to £17
a week for the first child and £11.40 for subsequent children. So, a family
with two children would receive Child Benefit of almost £1,477 a year,
with no tax to pay on this sum.
Unless you need this money to supplement your income, consider saving
or investing it for your child's future.
Child Trust Funds
If you have a child who was born after 31 August 2002, you will have
received a voucher from the Inland Revenue which, depending on when your
child was born and your financial situation, will be worth between £250
and £500.
You can invest this money in three types of Child Trust Fund: a cash
savings account, a stakeholder account where the money will be invested
in shares and then gradually shifted into less risky investments after
the child's 13th birthday (known as 'life-styling'), and a non-stakeholder
account for the more adventurous parents who want to invest the money
in riskier shares.
As the returns on cash just aren't as good as those from the stock market
over the long term, look at the two share-investing products. The Stakeholder
version offers a safer form of investing in the stock market because of
the 'life-styling' option. The Halifax and Nationwide are among those
offering Child Trust Funds.
Parents, family and friends can contribute up to £1,200 a year on top
of the government's gift and, as the returns are tax-free, it makes the
Child Trust Fund a very efficient vehicle for saving or investing for
children. Note, however, that the entire fund is automatically paid directly
to your child on his or her eighteenth birthday so make sure you've taught
them the value of money by then so they don't splurge it!
Child Tax Credit
The Child Tax Credit (CTC) is paid to families with children and the
amount is based on your household income. Families earning less than £13,910
receive the maximum benefit, with the payout decreasing on a sliding scale
the more you earn. If your household income is under £58,000 (£66,000
if you have a child under one), you'll be entitled to an element of CTC.
Working Tax Credit
This is a top-up for people who are on a low income and in paid work,
whether employed or self-employed. Again, it's means tested and, for parents,
it includes a 70% contribution towards your childcare costs if you're
working. Working families with one child can claim as much as £175 a week
towards childcare costs while those with two or more children can claim
up to £300 a week.
If you're eligible for the Working Tax Credit you may be able to claim
other benefits. If your income is below a certain level there is help
with health care costs such as free NHS prescriptions, NHS dental treatment
and sight tests with vouchers towards the cost of glasses or contact lenses.
Any older children may also be eligible for free school meals.
Childcare Vouchers
A recent improvement to the taxation of childcare vouchers, which around
one in five companies currently offer to their staff, now means that the
first £50 of vouchers each week are not liable for National Insurance
Contributions (NICs) and income tax.
Although you have to sacrifice an element of your salary to benefit
from the vouchers, it could mean an annual gain of £858 for basic-rate
taxpayers, or £1,326 for highly paid workers. The scheme is probably of
more value to those who are not entitled to Working Tax Credit as the
childcare element of your tax credits could be affected by the vouchers.
Finally, note that the forms for Child Tax Credit and Working Tax Credit
are a nightmare to fill in which might explain why up to two million of
the UK's 7.2 million eligible families have failed to claim their full
benefits. But both are valuable income boosters so it's worth the effort
and, besides, you can use any surplus to save for your child's future.
The Chancellor of the Exchequer, Gordon Brown, says that a family with
two children claiming their full entitlement to benefits and tax credits
should now be enjoying an income of £21,200 before starting to pay tax.
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