Starting a family

Claim Child Benefit, whatever you earn

This is the most valuable ten minutes in this entire section, and the intuitive decision is the wrong one.

If you or your partner earn above £60,000, a tax charge claws back some or all of Child Benefit, and above £80,000 it takes all of it. Plenty of people in that position conclude there's no point claiming.

Claim anyway, and tick the box declining the payments.

The reason is National Insurance credits. Claiming Child Benefit for a child under 12 gives the claimant credits towards their State Pension for every week they claim. A parent who stays home, or works part-time below the National Insurance threshold, and doesn't claim, builds no State Pension entitlement for those years.

Over several children and several years, that can be a large number of qualifying years lost, and each one permanently reduces State Pension for life.

By ticking the box you get the credits and your child's National Insurance number at 16, with no charge to pay and no tax return needed.

Claim it in the name of the lower earner, since that's who needs the credits.

Full detail is in The High Income Child Benefit Charge. If you've already made this mistake with an older child, it's worth investigating whether credits can be applied for retrospectively.

Protection stops being optional

Before children, life insurance is a reasonable idea. After, it's the difference between a family absorbing a tragedy and a family also losing their home.

Life cover for both parents, including one who doesn't earn. The unpaid work — childcare, the school run, running the household — has a replacement cost, and it's substantial.

Income protection, because being unable to work is more likely than dying and the mortgage doesn't pause.

Write policies in trust. It's free, takes one form, and means the money reaches your family in weeks rather than after probate. See Putting policies in trust.

Make a will, naming guardians. This is the only way to say who raises your children if neither parent is there, and it's the single most important reason for a young family to have one.

Check your death in service cover and update the nomination. It probably still names a parent or an ex-partner.

What it actually costs

The honest answer is that childcare is the dominant cost in the early years and often exceeds a mortgage payment.

There's government support — free hours for eligible children, tax-free childcare, and support through Universal Credit for some families — and the schemes have expanded, so check the current position on gov.uk rather than relying on what a friend told you two years ago.

One thing worth modelling before deciding who goes part-time: compare the reduction in take-home pay against the childcare saved, and then look at the effect on pension contributions. Reducing hours for a few years has a longer shadow than most people expect, because those are contributions that would have had decades to compound.

That isn't an argument against doing it. It's an argument for knowing the cost and, where possible, compensating — the partner still working full-time can increase their contributions, and the part-time partner can keep contributing something.

Saving for them

Junior ISA. Tax-free, with its own allowance separate from yours. The money becomes theirs absolutely at 18, which is either the point or the problem depending on your view.

A pension for a child sounds absurd and is mathematically remarkable. Even a non-earner can contribute £2,880 a year and receive £720 in tax relief, and money invested at age two has sixty-odd years to compound. Inaccessible for a very long time, which is the trade.

A general account in your name, earmarked for them, keeps control past 18 and loses the tax shelter.

Don't prioritise this over your own position. Children can borrow for university. Nobody lends for retirement. The order in The order of operations still applies.

Grandparents

Two things worth mentioning to them.

Specified Adult Childcare Credits. A grandparent under State Pension age who looks after a child while the parents work may be able to claim National Insurance credits transferred from the parent — who often doesn't need them because they're working. It's free, it can be backdated, and it's substantially unclaimed.

Regular gifts out of income are immediately exempt from inheritance tax if they meet the conditions. A grandparent funding a Junior ISA from surplus income may be doing effective estate planning without realising. See Giving it away.

This page is for general education only and isn't personal advice. Childcare support and benefit rules change regularly — check gov.uk for the current position.