With a little over 24 hours until the Budget 2014, various news sources have revealed ministers are set to announce a tax-free childcare allowance of up to £2,000 a child.
The free childcare tax allowance is set to be introduced in the 2015/16 tax year, sooner than previously announced.
It has also been extended by £800, to £2,000 for each child in each tax year.
As we have explained here before, childcare is a very expensive item of expenditure for parents.
Earlier this month we blogged about new research from The Family and Childcare Trust which found childcare costs are now higher than average mortgage costs.
Help with the cost of childcare is expected to appear in political manifestos are the main parties prepare to do battle ahead of the General Election in 2015.
As things stand, employees of some participating companies can access a tax-free voucher scheme which reduces the cost of childcare. However, only 450,000 families currently benefit from this scheme as so few employers have signed up.
The new tax-free childcare allowance, to be introduced in 2015/16, would result in around 1.9 million families saving up to £2,000 a year in childcare costs.
It will work by parents paying 80% of childcare costs of up to £10,000 a child receiving the remaining 20% balance tax-free.
This will only be available if childcare is delivered by a registered childcare provider and it will be available for all children under 12 years old, according to reports.
When first announced, the free childcare allowance had a cut-off age of five.
The actual amount of free childcare allowance will depend on the total spend on childcare; a family spending £5,000 on childcare would receive tax-relief of £1,000.
This coalition government has already supported parents by extending the entitlement for three and four year olds to free early years schooling from 12.5 to 15 hours a week.
However, they also introduced the High Income Child Benefit Charge, which results in families with one parent earning more than £50,000 losing some or all of their child benefit payments through a tax charge.
Labour correctly point out that the Conservatives and Lib Dems have cut support for children and families by £15bn since they entered government.
This free childcare allowance is a step in the right direction for hard-working families, but more support is needed to help families address to rising cost of childcare.
Financial Planning has an important role to play when it comes to addressing the cost of childcare.
Do get in touch to find out how we incorporate the cost of childcare into the Financial Plans we construct for our clients and ensure the income is available to meet this expensive item, in balance with meeting other financial priorities.
