Bringing up children isn’t cheap, and becoming a parent often involves tricky decisions around work, childcare and household budgets.
Our quick-start guide gives you the basics on parenting financials, from the government’s new childcare top-up to early-years pension saving.
1. The tax-free childcare scheme
By the end of 2017, all eligible parents should be able to join the new tax-free childcare scheme. The scheme effectively offers a government top-up of 20% on money that you pay into a special account to cover the cost of childcare.
Unlike the current employer-supported childcare scheme, it doesn’t rely on your employer to offer it, and it’s available to self-employed parents too. To qualify, you need to be earning at least £115 a week and less than £100,000 per year.
The government will add 20p for every 80p you (or someone else) adds to the childcare account, with the top-up maxing out at £2,000 per year, or £4,000 for a disabled child. You can get the support until the child is 12 years old.
2. Child Tax Credit and Child Benefit
Child Tax Credit is a means-tested benefit. The threshold depends on a number of factors, but if you have one child, then a household income of less than £26,100 usually means you’re entitled to some Child Tax Credit. From April 2017, Child Tax Credit is limited to the first two children in a family.
Child Benefit, on the other hand, isn’t just for low-income families. It’s a payment anyone who is looking after a child under 16 (or under 20 if in education or training) can claim, although if you or your partner’s individual income is above £50,000 you may have to pay a tax charge. If this is the case and you don’t want to claim Child Benefit as a result, fill in the form anyway as this protects your National Insurance credits, which count towards your state pension.
3. Childcare grant if you’re studying
If you’re a full-time student in higher education and you have children under 15, you can apply for a childcare grant. This doesn’t have to be paid back and it’s paid in addition to your other student finance.
The amount you get depends on several factors including household income, but you could get up to 85% of your childcare costs, and for the academic year 2017-18 this is up to a maximum of £159.59 a week for one child and £273.60 a week for more than one child.
4. Free childcare for pre-schoolers
The government offers free childcare to parents with three to four year olds, and the number of hours you get is doubling this year for some parents.
Previously, working parents could get 15 hours of free childcare a week for 38 weeks, but now you can get an extra 15 hours a week as long as you earn at least £115 per week and less than £100,000 per year.
5. Tax on children’s savings
If you open a savings account for your child, there generally won’t be any tax to pay on the interest. In the past you had to complete a form to make sure your child didn’t pay unnecessary tax, but now savings income is paid without tax deducted. However, if you or the child’s other parent (or step-parent) pays in money to the child’s account that accrues more than £100 interest in a year, the income will be taxed as if it were your own. This could be a good reason to consider a Junior ISA, a children’s saving account with a tax-free threshold of £4,080.
6. Life insurance
Life insurance becomes much more important when you’re a parent, because you have dependents who may be in serious financial trouble if you die. Your insurer can pay a lump sum to the surviving parent, which could go a long way towards covering costs like mortgage payments, childcare and bills, whether your family’s lost the main carer or the main breadwinner. Some insurance policies will also cover you in the case of a serious illness that means you can’t work.
What are your top finance tips for parents? Tell us in the comments at the bottom of the page.