Sometimes the questions are complicated and the answers simple… Dr. Seuss
“what do you want to be when you grow up”?
That’s where it starts, but really, should it be Who, not, What?
After the first few years of planning soft play parties and buying £10 presents in every sale, because there is always a party due, we are now spending weekends meeting Youtube idols and Musically stars.
Expressing herself with a Jake hat and meeting ex-tesco worker and youtube multi-millionaire Dan TDM. Seriously, though… plays minecraft for a living
Putting birthday money away was one thing, but now, looming over the horizon are education costs, moving out, getting married (too early to be planning that?)
Well, the average age of first time buyers is now around 38
So, when do I get to choose the wallpaper in every room again, have that little home studio, downsize, move to the coast.
Who do I want to be when I grow up?
What is available for children’s savings, short or long-term
The grand-parents always say they want to help or give something to them. But 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 Junior ISAs are available for children up to the age of 18, and the money cannot be withdrawn until the child’s 18th birthday.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, although the total amount that can be invested during a single tax year is capped at £4,128 (2017/18)
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. The contributions must be maintained to earn the tax benefits. However, they do offer a valuable alternative, particularly if you are not the child’s actual parent.
These are a niche choice for investing 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, but the child will not be able to access the money until they are 55.
Life Company Regular Savings Plans
These tend to be used by relatively sophisticated investors, particularly expats and international executives. Investors can use them to build up a tax-free lump sum and then assign segments of it to their children. These segments are usually paid out tax-free as long as they fall within a child’s tax-free allowance but, in the meantime, the policyholder retains control of the investment policy.
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. Parents, family and friends can add a total of up to £3,600 to the account each year. There is no tax to pay on any income or any gains from the fund. The account remains in the child’s name and they will ultimately have control over how it is spent. Some providers will allow you to switch them into a Junior ISA now
Trusts (How to keep control)
Legislation over the past few years has eroded many of the tax-planning advantages of trusts. 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.