It’s often said that, whilst we may not be able to prepare the future for our children, we can at least prepare our children for the future. With this thought in mind, many parents and grandparents are looking for ways to save for the big events in a child’s life – schooling, university fees, a deposit on a property or a wedding.
We help clients put in place the right plans for their needs, giving them as much or as little control as they would like over the money saved for their children.
We begin by asking you a few questions:
There are a number of savings options available, they each have different tax rules and provide access to the money at various ages. We’ll explain their pros and cons and help you make the right choice.
These are a tax-efficient way to build up savings for a child and can be opened for any child under 18 born before September 2002 or on or after 3 January 2011. The annual allowance (tax year 2018-19) is £4,260 which can be saved into a cash JISA or a stocks and shares JISA.
The beauty of a Junior ISA is that the money is locked away until the child reaches age 18. One significant advantage of a JISA is that once it’s been opened by the parent or guardian, anyone can make contributions, including grandparents, friends and family. They can also be transferred between providers to get a better return.
These types of trusts are popular with parents and grandparents because the person setting up the account retains control until the child reaches 18. There is no annual limit to contributions in a bare trust, and money can be withdrawn at any time to pay for expenses such as school fees. The trust is taxed as belonging to the child. Because children don’t tend to earn money, it means growth and income is likely to be tax free. There is, however, an exception to this rule. When income of more than £100 a year is generated on money paid in by a parent, this will be treated as being earned by the parent and taxed at their marginal rate, so it often makes sense for the grandparents to save on the child’s behalf.
While many parents or grandparents have opened a Junior ISA for a child, relatively few have taken out a “self-invested personal pension” (SIPP). Many parents are unaware that they can set up a pension for a child. Even though they don’t pay tax, children can still benefit from 20% tax relief on pension contributions up to an annual limit.
This provides wealthy families with a highly tax-efficient way to make long-term investments on their offspring’s behalf. In any one tax year, a maximum of £2,880 can be contributed to a child’s pension. To this sum the taxman will add £720 in tax relief, bringing the total up to £3,600. More can be added to the pension above this threshold, but it won’t benefit from added tax relief.
Thoughtful, common sense advice, clearly delivered
For further information on how we can help you build and protect your wealth, please contact us.