Political parties are scrambling to put themselves ahead in the general-election race, with childcare looking like a key battleground.
The coalition plans to push through legislation to help millions of families with soaring childcare bills, while Labour has pledged to extend the amount of free childcare for three- and four-year-olds.
There are prudent steps all parents should take ahead of the vote to plan for their children’s financial future.
Pregnancy and planning tend to go hand-in-hand, from what name to give your little one to how and where to raise your family.
But how often do a mother- or father-to-be plan for the overall cost of raising a child?
With the cost of childcare continuing to rise above the rate of inflation, it is clear that it is not just the cost of university that parents should be planning for.
The average cost of part-time childcare for two children in Scotland is now 22% higher than the average mortgage bill at £9,240 and £7,207 per year respectively, figures from the Family and Childcare Trust show.
When children reach school age, bills for uniforms, sports kits after-school care start to roll in.
Add to that the desire of most parents to save for their children’s further education and it is no wonder that the average cost of raising a child now exceeds £225,000 – up 62% since 2003, according to LV’s annual cost of raising a child survey.
There are many saving vehicles available to parents and other relatives, from tax-efficient individual savings accounts (ISAs), junior ISAs (or its predecessor, the child trust fund) and children’s bonus bonds from National Savings & Investments, as well as cash savings accounts, premium bonds and investment funds.
Junior ISAs, child trust funds, premium bonds, children’s bonus bonds and cash savings can all be held in the child’s name, but this means the child has access and control of the funds when they grow up – normally from age 16 – and means entrusting your child to use the funds wisely.
The alternative is to set up savings in your own name, earmarked for your child.
Where appropriate, trust planning can be used to make sure these are passed to beneficiaries in a controlled manner.
Regardless of the chosen vehicle, there are various strategies that should be observed along the way.
Use taxation to your advantage. Savings in the child’s name will be subject to income tax at the child’s rate.
Children also have their own tax-free income allowance and annual capital gains tax exemption.
Caution should be taken in gifting money to a child, however, as any interest over £100 will be charged at the parent’s nominal rate.
There is no better time to start planning than now as the earlier you start, the more you can accrue over time.
Rhian Morgan is a financial planner at Acumen Financial Planning in Aberdeen. She can be contacted on 01224 392350