To reflect the new tax year, this article has been updated.
At a glance
- If you’re part of the ‘sandwich’ generation – juggling a young family and elderly parents – your money can feel pulled in every direction.
- Tax-efficient, regular saving can give your children a financial head start –and help spread wealth between generations.
- Using all your tax reliefs and allowances now can help lower your tax bill next year and keep more of your money in the family.
Putting your family first
When you’re in your 40s and 50s, you can sometimes feel like you’re financing three generations, not just one. Many people find themselves caught by the ‘sandwich generation’ squeeze. They want to ‘do the right thing’ by both younger and older generations of the family, especially financially. But at the same time, they may be wanting to consolidate investments and maximise their own saving, so there’s enough money in their own retirement pot.
Making a family-friendly financial plan
Nowadays, more of us are thinking about financial planning for the whole family. Money is moving up, down and across generations more than ever before.
In this article, we’ll look at the practical ways you can start thinking and planning multi-generationally. Taking financial advice can help ensure that’s happening in the most tax-efficient and future-proof way.
Are you using all your tax allowances?
Nobody wants to pay more tax than they have to. So, it makes sense to take advantage of the tax allowances that are right in front of us. Especially the ones we’re most familiar with, such as the annual £20,000 ISA allowance.
ISAs are simple, tax-friendly savings accounts. Cash ISAs make a good, tax-efficient home for rainy-day funds, and Stocks and Shares ISAs can provide the potential for growth from your investments. Growth that can help you achieve longer-term ambitions, from buying a new home to affording a good school.
ISAs make good sense for cross-generational saving. Putting money aside in an ISA for long-term care costs, for yourself or your loved ones, can take a weight off everybody’s mind. Or, saving ‘little and often’ into a Stocks and Shares ISA for your children could give them a real boost when they leave home to make their own way in life.
Since you can pay into more than one ISA (within the £20,000 limit), you may find it helpful to earmark each ISA for a different mid- or long-term goal.
Saving even small amounts into each on a regular basis will make the most of changes in the market, or changes to interest rates. Then, all you need to do at tax year-end is to top up that regular saving with a larger lump sum – and you’ve made the best use of your ISA allowance.
In addition to the £20,000 ISA allowance, the government is considering a proposal to introduce a British Stocks and Shares ISA, which would increase the tax-free ISA allowance by a further £5,000.
Children get a tax efficient break too
When it comes to giving your children a head start, opening a Junior ISA (JISA) for them means they can build up a tax-efficient pot of money. The maximum you can pay into a JISA is £9,000 in any tax year. They can access this account at 18, or they can roll it over into a standard ISA.
Watching their money grow encourages children to understand the importance of saving and get into good money habits early. Their money might help with driving lessons, or living costs at university, or even go towards a first house deposit. JISAs are a tax-friendly, practical solution to give your children a head start.
Junior pensions and pension tax relief
Many of us don’t think about our pensions until we’re firmly established in our careers. However, any parent or legal guardian can open a Junior Pension for their child as soon as they’re born. You can usually only put up to £2,880 a year into a Junior Pension, and the 20% pension tax relief bumps this up to £3,600.
Planning ahead is important. Most of the tax allowances and tax reliefs you can claim are on a use-it-or-lose-it basis, so regular amounts saved throughout the year can be more affordable for the family than looking to release a larger sum at tax year-end. Thinking this far into the future means that even small amounts paid in regularly could grow significantly by the time your children retire.
How to pay less Capital Gains Tax
People often overlook their annual Capital Gains Tax (CGT) exemption too, which can make a difference to the amount of money you have to invest, or save. CGT is the tax that you pay on the profits if you sell a property or asset that has increased in value. The current 2024/25 Tax Year CGT exemption means that the first £3,000 of profit is tax-free.
The amount of CGT you’ll pay depends on your tax band and the asset you’ve made a gain on, and it’s well worth taking financial advice on this, as it’s a complex area of tax planning.
Getting on top of CGT can make a real difference to your family’s financial health.
Financial advice can help you keep more money in your family
We spend much of our lives earning, saving and investing. But just as important is knowing how and when to start spending your money or using it to help other family members. Moving money between generations may also lower your eventual IHT bill too.
Talking your options through with a financial adviser will help you feel confident about the financial wellbeing of your whole family.
That’s one of the best investments you can make.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Cash ISAs are not available through St. James’s Place.
SJP Approved 15/03/2024