Page 21 - Budget Newsletter 2021

Parents

Child benefit

The High Income Child Benefit Tax Charge – the child benefit tax – means that if you or your partner has income of
£60,000 or more in the current tax year there will be a tax charge equal to your total child benefit unless you have
taken a decision to stop benefit payments.

Between £50,000 and £60,000 of income, the tax charge is 1% of benefit for each £100 of income above £50,000 – a
threshold in 2021/22 (and 2022/23) that is below the starting point for higher rate tax (other than in Scotland). The
result can be high marginal rates of tax in the £50,000-£60,000 income band. If you have three children eligible for
child benefit, the marginal rate is over 65%.

PLANNING POINT

As the High Income Child Benefit Tax Charge is based on taxable income, you could reduce the impact of the tax
by making a pension contribution.

Junior ISAs

Junior ISAs (JISAs) were launched in November 2011 with an annual investment limit of £3,600, which has been
increased over the years to £9,000. That limit will continue to apply for 2022/23. JISAs can be invested in cash deposits
and/or stocks and shares in any proportion and can usually be arranged for any child who was born after 2 January
2011. A child cannot have both a JISA and a Child Trust Fund (CTF) account (which has the same investment limits). It
is possible to transfer CTF accounts to a JISA, a move that may result in reduced fees and a wider investment choice.

The first CTF accounts, for children born in September 2002, reached maturity in September 2020. By default,
matured CTF accounts have continued to enjoy the current UK ISA tax exemptions as a ‘protected account’. If
instructions are given, they can be transferred to an adult ISA, with any such transfer not counting as a contribution
for the tax year, unless it is to a LISA. According to a recent press release from HMRC, ‘thousands of teenagers’ are
missing out on CTF cash. Many CTFs are ‘lost’ with just one payment of £250 having been made by the Government
over a decade ago. To trace a CTF, go to https://www.gov.uk/child-trust-funds/find-a-child-trust-fund.

University funding

The £9,250 a year maximum tuition fee for new 2022/23 students in England and Wales is, for now, a fact of student
life, even if the educational process is much less certain.

If you have children likely to go to university, it makes sense to consider your funding options. For example, JISAs are a
potentially valuable tool to build up a fund by age 18. For those who prefer a greater degree of control over the
student's access to the investment at age 18 (while retaining tax efficiency) collective investments held subject to an
appropriate trust can look attractive, as could an offshore investment bond.

Despite these tax-efficient "pre-funding" opportunities, under the current rules many experts consider that it makes
sense to take the student fee loans while at university rather than pay fees from capital. That is because repayment
for most recent and new English and Welsh loans only begins once earnings reach an unchanged £27,295 and any
debt is currently written off after 30 years from the April after graduation.

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