Advice Investments Wealth management

Six financial planning points for mothers and children


Rachael Griffin

Tax and financial planning expert at Quilter

In preparation for Mother’s Day this weekend, here are six financial planning points which might impact a mother and her children’s finances.

Starting a family can drastically change a mother’s life, priorities and finances. Having a detailed financial plan to help someone cope with these big changes and alleviate some pressure at an already strange and stressful time. The increase in flexible working post-pandemic may support greater sharing of childcare responsibilities, but at present mothers still shoulder the majority of the load. Due to this, mothers can suffer ‘a motherhood penalty’ seeing them earn less and in turn save less than their male counterparts. The following six points can help mothers avoid some of the financial pitfalls and make the most of a mother’s and their children’s finances.

Don’t lose out on child benefit unnecessarily

Following changes announced in the budget earlier this month, some families who pay basic rate tax will start losing some of their child benefit. This is because from April, the point at which someone will start paying higher rate tax will increase from £50,000 to £50,270. However, the government has not in turn risen the child benefit ‘high earner’ threshold, meaning that if a family member earns more than £50,000 then they could lose out on the benefit. As a result, the basic rate taxpayer will have to fill out a self-assessment form to pay back any child benefit they were not entitled to. If one earner in a family makes more than £50,000 a year then they must pay back 1% of the child benefit they receive for every £100 over the threshold. However, it’s worth remembering that the child benefit salary cap is on income after pension contributions, so one way around this is to pay more into your pension so that you fall below the threshold. At present the child benefit is £21.05 for a first child and then £13.95 each for additional children. Fears are that this additional intricacy will mean that people decide not to bother claiming child benefit at all.

Not claiming child benefit can impact your pension provision

The problem with failing to claim child benefit is that it can ultimately impact your pension if you take a career break to look after children. Unless you claim child benefit you may end up missing out on National Insurance credits. This can then mean that you won’t qualify for your full state pension, which requires you to have 35 years of NI credits. Even if you don’t qualify for child benefit you still need to remember to fill in the child benefit claim form (CH2) to retain national insurance credits when caring full time for a child. Each year’s credit is worth £250 a year at state pension age. If you forget to claim the Government only allow mothers to claim three months’ worth of NI credits back. Career breaks can also mean that a women’s private pension is less too, so it is important to start as early as possible and try to continue to contribute to a pension even if you don’t have a regular income. Similarly, to increase their levels of flexibility some mothers choose to re-enter the workforce in a self-employed capacity and then are not auto-enrolled into a pension, so it’s critical that if you take this route you find alternative pension provision.

Make a plan to pass on your wealth in complex family situations
More and more families are considered complex these days and while there is nothing wrong with that it can become harder to make sure that wealth is passed on in exactly the way you want. For example, if a mother with young children had a significant inheritance that she wanted to use for her children’s education but then died or got divorced that money may not end up being used in the way she wished. This is because, if she died without a will in place the money would by default go to her husband, if she had one, meaning that he could choose to spend the money in a different way. It therefore might be worth putting the money in trust so that it is shielded from being used against her wishes.

Gift to see the impact of your wealth

Putting money in trust can help mitigate against inheritance tax, as once it is in trust it sits out of the person estate. However, if IHT mitigation is a worry then there are other ways to do it like lifetime gifting. By gifting wealth to your loved ones while you are alive not only do you get to see them enjoy it but it may not become part of your estate when you die. The IHT annual gifting allowance enables people to give away up to £3,000 a year without incurring any IHT liability. Anything above this and your child might get charged inheritance tax on it unless you survive for seven years after making the gift. It is therefore always best to gift as early on in life as possible if you know you don’t need it yourself.

Do not forget to protect the primary carer
A lot of people get protection products such as critical illness cover, life assurance or income protection from their employer as a workplace benefit. For mothers taking a career break this can mean that they are left unprotected leaving their family exposed. It’s worth remembering childcare can be enormously expensive and if the primary earner needs to flex their hours to also become the primary carer because a mother has fallen ill or worse died then this can have a huge impact on a family’s finances. Having financial protection in place for a single mum is even more important as the family will be totally reliant on her income.

Save for your child’s future 

Creating a savings plan is a great way to ensure that your child has a leg up in life as and when they fly the nest. Starting right after they are born and putting as much as you can afford regularly away can end up meaning that you can build up a sizable pot of money to give them when the time is right. There are a number of different options for doing this and one of the most popular is a Junior ISA. Junior ISA rules dictate that your child will be able to access the money saved in the account when they turn 18 and the account becomes an adult ISA. It is worth bearing this in mind if you feel that your child may spend the money frivolously at that young age. Another option if you want to retain greater control over the funds is to maximise your own ISA savings and then gift the money when you see fit.