I’ve been reading a lot of headlines about the rising cost of childcare and I am worried about how my son and daughter-in-law can afford to pay the nursery and summer holiday club bills for my two grandchildren, who are three and five.
I don’t live near enough to be able to help.
What Government help is available to them and what can I do, if anything, to ease the burden? P.T., York
Costly: According to website money.co. uk, the average monthly childcare bill in the UK is £936
Ruth Jackson-Kirby replies: This country has the second-highest childcare costs in the world – only New Zealand is worse – and the bills can make life tough for many families.
According to website money.co. uk, the average monthly childcare bill in the UK is £936.
The equivalent figures for France, Spain and Germany are £511, £303 and £270 respectively.
Research by charity Pregnant Then Screwed has found that one in four parents has had to cut down on food, heating or clothing to afford childcare. So, it is understandable that you are worried.
The good news is that there are several things you can do to assist. First, check your son and daughter-in-law are using the help that is available. A tax-free childcare account could give up to £2,000 a year towards their childcare bills for each child. Yet, the scheme is used by just 30 per cent of eligible families.
Laura Suter, head of personal finance at investment platform AJ Bell, says: ‘With the average family in the UK having 1.9 children, it means each family could be getting £3,800 on average towards childcare costs each year – money that would go a long way to helping in the current bills crunch.’
The problem is the lack of advertising about the scheme – thousands of parents simply aren’t aware the Government will help them pay for childcare. So, here is everything you need to know.
To open a tax-free childcare account, both parents need to be working and each earning more than £152 a week, but not more than £100,000 a year. They also need to have a child aged under 11 (or under 17 if they are disabled). So, your son should be able to open accounts for both of his children and claim up to £4,000 a year. The accounts can be signed up to via gov.uk/get-tax-free-childcare. National Insurance numbers and unique taxpayer references (if self-employed) are needed.
Once the accounts are up and running, your son and daughter-in-law can save money into them. Every time they make a deposit, the Government adds 20 per cent to repay the basic income tax they’ve paid on the money. So, if they pay in £800, then £200 will be added to the balance.
The Government will top up a maximum of £2,000 a year per account and this is limited to £500 per quarter, so try to pay into the account evenly throughout the tax year to make the most of the Government’s contribution. Childcare bills can then be paid directly from the account. The money can be used to pay for a range of childcare costs – from nursery fees to summer clubs, childminders and breakfast clubs. The only requirement is that the providers and individuals must be registered with Ofsted.
Your son should also be able to claim free childcare for his youngest. Once a child turns three, they are eligible for at least 15 hours of free childcare every week in term time. This rises to 30 hours if both parents earn at least the minimum wage but not more than £100,000 a year. You can apply at gov.uk/apply30-hours-free-childcare. If you want to offer some financial support yourself, you can help with their childcare costs and reduce any future inheritance tax bill at the same time.
Making regular gifts out of normal expenditure means the money is immediately out of your estate for inheritance tax purposes.
Helen Morrissey, senior pensions and retirement analyst at wealth manager Hargreaves Lansdown, says: ‘You can make a cash gift of any size tax-free as long as you can prove you can afford to make the payments after meeting your usual living costs and you are making it out of your regular monthly income.’
She adds: ‘To qualify, you must keep careful notes of what you have gifted and when, as Revenue & Customs will want to see a pattern of regular payments to know you have enough income to afford to make them.’
