HENRYs preparing for children

What steps can be taken as a HENRY when preparing to have children?

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Perparing for children as a HENRY

Having children is a life-changing event that requires careful financial planning, especially for High Earners Not Rich Yet (HENRYs). Free childcare hours and tax-free childcare are available if both adults in the household have an adjusted net income less than £100,000. It may be the case that you choose to adjust some of your income in order to qualify for these benefits. If this is something you are considering, it is best to plan well in advance of having children to ensure that your outgoings are adjusted to fit with your new income.

Dipping in to savings can provide you with a buffer to manage any income adjustments you make. This will be extra spending money for you, but keep in mind that if you have chosen to adjust your income, you may be doing this for several years, ensure your savings will last long enough. Reducing your financial commitments can help adjust your outgoings to fit with a lower income. One of the largest commitments for HENRYs is a mortgage. Consider if it is (worth switching to an interest-only mortgage)[https://www.youtube.com/watch?v=MWadHLKMgB4] before you have to reduce your income. Many mortgages allow overpayments, and so if you find you have enough spending money, you can continue to pay down the capital when you are able to, pulling back if you ever need spare spending money.

Here are some key landmarks to consider when preparing for children:

  • 5 years before nursery
    Review Savings and Investment Plans

    You may want to build up some savings to supplement any reduced income during the nursery years. Remember that you may get taxed on interest outside of tax-wrappers, you may want to start moving investments inside an ISA. For those with a higher rix appetite, you may also consider investing in tax-efficient investments such as EIS or VCTs to generate returns over the longer term.

  • 1 fixed-rate before nursery
    Review mortgage

    You may choose to remortgage to a more affordable deal ahead of income drops. Consider an interest only mortgage to allow you flexibility in cash flow during your reduced income.

  • 12 months before nursery
    Reshape pay and debt ahead of income drops

    Decide how you will reduce taxable or adjusted income if you want to stay under the £100k childcare cliff (pensions, EV salary sacrifice, share schemes).
    Map bonus deferrals, vesting schedules and any cliff dates so you can coordinate leave dates with liquidity events.

  • Birth month
    Execute the post-birth admin sprint

    Consider Child Benefit even if you expect to repay the High Income Child Benefit Charge; it protects State Pension credits.

  • 0–9 months after birth
    Activate funding

    Start paying into the Tax-Free Childcare account (every £8 you deposit becomes £10) once childcare invoices begin.
    Register for free nursery hours.

  • After the birth of Baby 2
    Consider sibling childcare strategies

    With two (or three) children, you may want to consider different childcare strategies such as nannies, au pairs, or shared childcare to optimise costs and convenience.

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