If you are a parent, guardian or grandparent, you may be conscious of trying to provide the best financial future for your children or grandchildren that you can.
In today’s climate, providing for a child can cost tens of thousands of pounds. Whether it’s putting them through university or helping them onto the property ladder, a Christmas gift that could help with some of those expenses in later life is well worth considering.
Many children receive hundreds of pounds worth of gifts at Christmas, but could that money be put to better use?
Below, we have put together key details of some of the most popular accounts for children for your consideration
Junior Individual Savings Accounts (JISAs)
A JISA is a tax-efficient children’s savings account where you can make contributions on the child’s behalf, subject to an annual limit. The Junior ISA limit is £4,260 for the 2018/ 2019 tax year, increasing with consumer price inflation to £4,368 from April 2019. Any gains do not incur Capital Gains Tax and they will not be considered part of the parents’ or grandparents’ estate for Inheritance Tax purposes. Money in the account belongs to the child, but they can’t withdraw it until they turn 18, apart from in exceptional circumstances. They can, however, start managing their account on their own from age 16.
When the child turns 18, their account is automatically rolled over into an adult ISA. They can also choose to take the money out and spend it how they like.
The two types of JISA
Junior Cash ISAs
These are essentially the same as a bank or building society savings account. But Junior Cash ISAs come with one big advantage: your child doesn’t have to pay tax on the interest they earn on their savings, and you don’t have to either;
Junior Stocks & Shares ISAs
With a Junior Stocks & Shares ISA account, you can put your child’s savings into investments like shares and bonds. No tax is payable on interest or investment gains. A child’s parent or legal guardian must open the Junior ISA account on their behalf.
Pensions
Children’s pensions benefit from the same advantages as adult pensions. That means the pension fund benefits from the favourable tax treatment, in terms of tax relief on contributions along with the tax advantages of the fund.
Investment Account
For tax reasons, this approach may best be suited to grandparents. A grandparent can set up a designated account for a grandchild and invest a capital sum in it. The account remains under the full control and ownership of the grandparent, with any income and gains taxed as the grandparent’s own.
When the grandparent deems appropriate, the account can be gifted or assigned to the child. Where this occurs, the grandchild is legally entitled to the money at age 18, and can use it as they see fit. The transfer of ownership of the monies would be treated as a Potentially Exempt Transfer (PET). The value of the gift will be outside the grandparent’s estate after seven years.
Many parents and grandparents want to set up their children or grandchildren to enjoy a secure financial future. Yet paying down student debt is not necessarily the best option if they have a spare capital sum to invest. They could also consider helping their children or grandchildren to save towards a deposit for a property or start a pension for them so that they have security in later life.
Time is a powerful friend for investors, so if you are investing on behalf of children, you start with a great advantage. If you would like to discuss the options available to you, please contact our Independent Financial Advisers on 02922 67 57 30 or email at [email protected]. We look forward to hearing from you.
The value of investments and the income from them may go down. You may not get back the original amount invested.
A pension is a long-term investment, which is not normally accessible until age 55.
Levels, bases of and reliefs from taxation may be subject to change, and their value depends on the individual circumstances of the investor.