Investment management and financial planning need to be studiously aligned to make the absolute most of your wealth, but all too often people can neglect the tax, structuring, retirement and inheritance sides of things.
Bringing up children can be hard work at times, but that shouldn’t mean you put optimising your wealth entirely on the back-burner. In fact, becoming a parent should really prompt a thorough review of your complete financial situation and investments as your financial goals are likely to have changed quite radically.
Becoming a parent is a momentous life change. The truth is that it is also likely to be a pretty expensive one when you consider, just as a jumping off point, that total school and university fees can amount to more than £250,000 per child.
Many parents will also be thinking well beyond education alone when it comes to providing for their children’s future. Young people today can struggle to get on the housing ladder without a leg-up from family and so building up a nest egg for the next generation is a big priority for many parents.
With so many things to consider, it would be easy to feel daunted. The good news is that there are a host of clever strategies your wealth manager can deploy to help secure your family’s financial future, here are my essential wealth management tips for parents!
A good education will go a long way towards securing your child’s financial wellbeing as an adult, but the total cost of schooling and then university fees on top can be quite scary to consider.
There are many investment strategies wealth managers can use to help you meet these costs, along with tax-effective options like trusts. Some private schools now also offer an advance fee option, where the school invests the money and discounts the fees in exchange. This could hold tax advantages.
Under the 2014 ISA reforms, the annual contribution limit for Junior ISAs has been raised to £4,000. As with adult ISAs, funds for children can now be invested in either cash or stocks and shares accounts in any combination. Over the long term, even modest savings can compound with interest to become quite a chunky sum.
Remember, however, that a Junior ISA can’t be accessed until your child turns 18. Also bear in mind that they will get full control of the money at this point.
From 2015 the government you may be able to access a childcare tax break which could be worth up to £2,000 a year per child.
Under the new system working parents will be able to claim a 20% subsidy on childcare costs, up to a maximum of £10,000 per year (and assuming an Ofsted-endorsed provider is used). To be eligible as a couple, both parents must earn over £50 a week, but not more than £150,000 a year each.
All married couples, regardless of whether they have children, should take professional advice on how their individual income and capital gains tax allowances can be best used in tandem.
Spread pension savings across both your pots to maximise reliefs and if one of you owns a business think about putting shares in both your names. These are just a few of the options a wealth manager can help you explore. Good forward planning could save you thousands of pounds over a lifetime.
With so-called bare trusts, grandparents can place assets in trust for your child, with the income and capital gains on them taxed at the child’s rate. Grandparents may also be looking to minimise inheritance tax, but they should also be aware of the seven-year gifting rule, which means that you have to live on for seven years after making a gift or IHT may still be payable.
Several tax advantages are to be had from looking at family wealth across the generations and pooling assets. One option is to establish a Personal Investment Company, which allows parents and children to get different income from family assets through each being allocated a different share class.
Another solution is bancassurance, which uses a combination of life assurance and investment management.
These are just a handful of the wealth management strategies you could explore. There are also a few essentials (like reviewing life insurance policies and wills) which any good adviser will draw to the attention of a client who is becoming a parent. This is why it is essential to alert your wealth manager to any significant change in circumstances as soon as possible – the pitter-patter of tiny feet definitely being one.
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