SAVING FOR YOUR CHILDREN
Posted by Michael Aspen on 30 Apr 2018
Sometimes the questions are complicated and the answers simple… Dr. Seuss
After the first few years of planning soft play parties and buying £10 presents in every sale, (there is always a party due), putting birthday money in a jar, but now, looming over the horizon are education costs, moving out, getting married (too early to be planning that?)
In the last 2 years, my daughter, aged 14 has had school trips to consider to German Christmas markets, skiing, French War memorials, a multitude of Mufti Days, Fete’s and local trips. No education is free anymore!
So, long before I get to choose the wallpaper in every room again, have that little home studio, downsize, move to the coast, I can see savings are required
The grand-parents always say they want to help or give something to them.
- Where and what?
- What are the risks and what if I pick the wrong thing, because, let’s be honest, I am going to suffer the shortfalls too
- Interest rates on savings accounts seem low, so what other options do parents have?
Places to start
Individual savings accounts (ISAs) are now available to children, and are known as Junior ISAs. These are long-term, tax-free savings accounts. Junior ISAs are available for children up to the age of 18, and the money cannot be withdrawn until the child’s 18th birthday.
Anyone can contribute to the account
Child Savings Bonds
Offered by friendly societies and allow parents, grandparents, other relatives and friends to all save up to £25 a month on behalf of each child with the benefits then being earned free of further tax.
The bond must have a minimum term of 10 years, up to a maximum of 25 years
These are a niche investment choice for children, but can provide a solution in certain circumstances. Investments into a pension attract tax relief on the way in, but tax is payable on any income received.
You can contribute up to £3,600 gross every year in a pension on behalf of your child. That will cost a basic-rate taxpayer just £2,880 as the government adds tax relief
Designated Investment Accounts
These are a good alternative to a Junior ISA, if you wish to retain control of the investment once the child reaches 18. These are simply held in the Parents name(s) and are Designated for the child, and until the parents (or grandparents) decide, the investment is held without the knowledge of the child.
Child Trust Funds (CTF)
Although CTFs were stopped in 2010, millions of parents still have active CTF accounts for their children.
Many providers will now convert them to Junior ISA’s, meaning that they can be revived and more importantly, updated
Trusts (How to keep control)
In general, these are now used to control access to the funds rather than for tax planning.
Income and capital gains are treated as those of the children, which means that they can use all their allowances each year. It also gets round the problem that children cannot hold shares in their own name.
A very important use for Trusts, is when parents are gifting deposits for house purchase. Using a Trust can protect the gift against divorce, bankruptcy and break-ups if the house is sold.
So, when are you going to start?
It is said that the best day to plant a tree is 20-years ago, the second best day, is today!
When the time comes, it is better to have money in the bank than not, speak to an Adviser, your bank or even trawl the internet, but do something, because borrowing is always more expensive than saving….
Aspen Financial Services