We’re often asked what is the best way for me to save for my child’s, grandchild’s or godchild’s future, especially at this time of year with the schools starting a new year. There are so many costs facing children that it is a constant worry for many people. The average cost of a first car is now £6,768 1, with the average first home totaling £214,678 2. University fees have also now increased with the NUS estimating in 2012/2013 that the average course cost would cost £10,133 for each year at University and if you added living costs this could mean a three-year course could cost a staggering £57,618 3. So how can you help children save for their future.
Children’s savings accounts are free of tax and usually attract higher rates of interest than adult accounts. However, at the moment all interest rates are low. They do often offer the benefits of easy withdrawals and teach children to manage pocket money from an early age. You can read more about children’s savings accounts in this useful guide.
All children under 18 and resident in the UK can hold a Junior ISA. You cannot hold a Child Trust Fund and a Junior ISA at the same time but you can transfer a Trust Fund into a Junior ISA. You have the option of a cash ISA and a stocks and shares ISA and you can save up to £4080 during 2016/17 tax year. Once a child is 16 they can have both a Junior ISA and an adult ISA. Junior ISAs can only be opened by a parent or guardian and can only be accessed at 18. Here’s some more information on Junior ISAs. If you would like advice on a Junior stocks and shares ISA, please speak to us about the best option for you.
If you don’t want the money to be locked away until they are 18 you can still use your own ISA allowance.
NS&I Children’s Bonds
The parent, grandparent or guardian can purchase these on behalf of the child and they will receive them when they turn 16. They run for five years and in that time you can invest from £25 to £3000. A fixed rate of interest is then applied and is tax free.
A grandparent or other relative can open these as well as parent which makes it a bit more flexible than an ISA. The trust is managed by the person who opened it up including withdrawals, until the child is 18 when then child can manage it themselves. This makes paying school fees, school trips or buying a car a lot easier and can have added inheritance tax advantages. There are no limits either so you can put as much in as you like.
A child can actually hold a pension from birth. You can save up to £3,600 a year in a Junior SIPP and the government then add the equivalent of 20pc tax relief to it. Over time this can obviously accumulate to be a large amount which could fund your child’s retirement. The pension is not touchable until they are 55 but it removes the worry and uncertainty they will have for their future.
Leaving your pension
Pensions have always been free of inheritance tax but they used to carry a tax upon transfer after death. In April 2015, the tax on pensions upon death was changed. This means you could leave a large sum of money to your beneficiaries, including grandchildren tax free. They could use your pension to find their University fees, first house or first car. You need to check the conditions of your pension and speak to an adviser before taking any actions. They will be able to advise you on whether this is right for you and the best and most tax-efficient ways to do so.
Income Protection and Life Cover
It is important as a parent to protect the savings you do make for your children. You can use income protection to make sure that savings are continued in the event of you losing your income. This may help your children fund some of the outgoings you may otherwise have been unable to afford. Life cover also provides a cash sum upon your death ensuring your children are provided for and savings can be distributed to cover their outgoings if required.
We can help provide a universal plan that will help provide savings for your children at whatever lifestage you and your children are at and for whatever may happen in the future. This will help make sure that they are able to achieve their dreams without worry. Speak to one of the team today on 0333 456 0333 or email firstname.lastname@example.org to arrange a free no obligation initial review.
2 £214,678 for standardised average home price according to the Halifax House Price Index August 2016. http://static.halifax.co.uk/assets/pdf/mortgages/pdf/July-2016-Halifax-House-Price-Index.pdf
Please note any opinion in these articles is the opinion of Aiming for Utopia Limited only. No action should be taken on the basis of this information alone and we always recommend you seek independent financial advice. We cannot be responsible for the accuracy of content on third party websites.