When you’re in your 40s you can sometimes feel like you’re planning finances for three generations, not just one.
Many people find themselves caught in the “sandwich” generation, responsible for both their children’s future financial prospects and the wellbeing of their parents in later life.
At the same time, you may also be thinking about making the most of your investments so you’ve got enough money to enjoy your own retirement.
Your priorities change over time, especially when you’re working out how to balance your own financial wellbeing with that of your children’s in the future. It can feel like you’re spinning plates.
Are you using all your tax allowances?
With so many calls on your money, it makes sense to take advantage of the tax allowances right in front of you – such as the annual £20,000 individual savings account (Isa) allowance.
Creating a detailed financial plan that covers both your short-term needs and longer-term life goals is all about understanding how much you’ll need and when you’ll need it.
Isas are a simple and tax-friendly way to get started if you haven’t already.
Cash Isas make a good, tax-efficient home for rainy-day funds, while stocks & shares Isas can provide the potential for growth from your investments to help achieve your longer-term ambitions, from buying a new home to affording a great education for your children.
Tax-efficient savings may also help your loved ones with long-term care costs; taking a weight off their minds and yours.
Giving your children a break
Opening a Junior Isa for them means they can build up a tax-efficient pot of money. They can either access it at 18, or roll it over into a standard Isa and continue to save. It could make all the difference to them getting their first mortgage.
You may also be thinking about helping them get into university, deal with student debt or get on the property ladder.
Today’s teenagers are likely facing working and retirement lives very different from our own, so giving them a practical, financial head-start can really help as they begin building their own careers and lives.
How pension tax relief can help
Pension tax relief can make a significant difference to the amount of money you can save for later life, particularly if you start early. And any parent or legal guardian can open a children’s pension from the moment they’re born. You can put up to £2,880 a year into their pension and the 20% pension tax relief bumps this up to £3,600.
While this may not be front-of-mind when you’ve got a young family, the tax benefits on pensions mean even small amounts paid in regularly every month can mean your children being able to do what they dream of when they reach your age and older.
Making the most of capital gains tax
People often forget about the annual capital gains tax (CGT) allowance, which can make a big difference to your investment growth.
CGT is the tax you pay on the profits if you sell a property or asset that has increased in value. The 2022-23 tax year CGT allowance means the first £12,300 of profits are tax-free. Next tax year this allowance will drop to £6,000, falling to £3,000 in 2024-25.
The amount of CGT you pay depends on your tax band and the asset you’ve made a gain on. It’s worth taking financial advice as it is a complex, though useful, part of tax planning.
Talking your options through with someone who understands your short and long-term goals will help you feel confident about the choices you’re making for your children.”
Most of the tax allowances and reliefs you can claim are on a use-it-or-lose-it basis, so planning ahead is important. With tax year-end coming up fast, checking in with an exert will help make sure you don’t miss out.
If you’re thinking about moving cash around, or splitting your money, have a chat with your financial adviser. Talking your options through with someone who understands your short and long-term goals will help you feel confident about the choices you’re making for your children.
Gary Walker is managing director of Aberdeen-based Gary Walker Wealth Management.
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