How Can I Invest For My Children? The secret of successful saving for children is It costs £229,251 to raise a child to 21.1 With
to start early.
stagnant wage growth and low interest rates, many parents feel squeezed to make ends meet, let alone think about funding future costs like university or a housing deposit.
As expenses rise and returns from savings fall, the idea of building a nest egg for your child might seem far-fetched and, of course, it’s at least as important to teach children good savings habits. But saving for your kids need not break the bank and could make a huge difference to their future.
Distant goals are generally easier to afford. Buying a fi rst home or paying for further education or training can be made far more affordable by starting early. The principle is very simple: the longer the investment has to mature, the greater the benefi t will be from the year-on-year compound growth of reinvested returns: investing £200 a month for fi ve years can grow to over £13,000.*
There are a number of government schemes to
members. (However, only parents and legal guardians can actually set one up.) Saving this way may also help mitigate an Inheritance Tax (IHT) liability. Payments from grandparents, for example, may be covered by the annual £3,000 IHT gifting allowance, or the exemption for payments made out of income.
Under current legislation, savers can gain access to their pension fund at 55 – although this will change to 57 in 2028 and from then on it will be
save for children. The tax-friendly Junior Individual set at 10 years below the State Pension age. But Savings Account (JISA) is a very attractive option. Any returns are free from Income Tax and Capital Gains Tax. Savers can typically make regular or one-off payments up to the current annual limit of £4,368. Money held in a JISA is locked in until the child reaches 18, after which it can be converted into an adult ISA and continue to enjoy the same tax advantages.
Please visit my website or contact me to receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning.
Less well-known is that children can have a pension fund as soon as they are born. Setting one up can bring signifi cant tax advantages since, as you save, the government adds a generous tax relief.
Contributions up to the maximum of £2,880 a year are automatically grossed up by the government to take account of tax at 20%, giving a maximum annual investment of £3,600. Even a few years of contributions can build a substantial pot.
Just as with pensions for adults, pension pots for children benefi t from tax breaks. In common with JISAs, anyone can pay into the pension – parents, grandparents, godparents, friends or other family
44 Scott Symes
FPFS, Certs CII (MP & ER) Chartered Financial Planner
01202 951227 07885 899742
scott.symes@
sjpp.co.uk www.scottsymeswm.co.uk
1
Centre for Economic and Business Research, Sep 2019 * Assumes an annual growth rate of 5% net of charges.
This fi gures is an example only and is not guaranteed – it is not a minimum or maximum amount. What you will get back depends on how your investment grows and on the tax treatment of the investment. You could get back more or less than this.
the benefi ts can be felt long before that. Saving into a pension for your children allows them to focus instead on the costs of starting a family and buying their fi rst home.
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