Creating Wealth for Children
For many people, investing in their child’s future is one of the most important things they can do.
Whether you save little and often or have bigger sums of money to invest, keep going over a few years and you will soon have a very useful amount. This can go a long way towards setting them on the road to being independent or encouraging them to become savers themselves. Getting children involved in savings early on can help them to learn important lessons about money.
There are a variety of ways to invest in a child’s future; we’ve outlined a few below.
Children’s savings accounts
The handy thing about savings accounts is that they’re easy to pay into and access. They also pay interest and tax isn’t deducted before interest is paid in. There’s no need to reclaim tax if you’re a non-taxpayer and tax only has to be paid if the interest is more than your tax-free allowance.
However, it’s worth being aware that there are special rules when parents save for their children. If the interest they get is more than £100 a year, as the parent, you’re liable to pay any tax due on this.
The good news is this doesn’t apply to money received from grandparents, relatives or friends.
Junior ISA’s let you save and invest on behalf of a child under 18. With no tax on the earnings, the money you put away can grow even faster. You can save up to £4,128 for the tax year 2017/18. A child’s parent or legal guardian must open the junior ISA account on their behalf.
Money in the account belongs to the child but they cannot withdraw it until they turn 18, apart from in exceptional circumstances. They can however, start managing the account on their own from the age of 16.
There is no tax payable on interest or investment gains and when your child turns 18 it is automatically rolled over into an adult ISA (sometimes called an NISA).
Junior Cash ISA
A junior cash ISA is generally the same as a bank or building society savings account, but they do come with one big advantage… your child doesn’t have to pay tax on the interest they earn on their savings, and as parents or carers, you don’t either.
Friendly society tax-exempt plan
These particular savings accounts are only available through Friendly Societies which are mutual benefit organisations, owned by their members to work for the advantage of those members. Money is invested in a share-based investment fund for the term length you choose. The maximum amount you can pay in is £270 per annum, or £300 per year if you pay in £25 each month.
The value of these investments can go down as well as up. Friendly Society policy charges also apply.
Start a pension for your child
Another option for investing in your child’s future is to start a pension fund for them from a very young age. This can make a big difference later in life as it means pension benefits can build up over their lifetime, rather than waiting until they are older and enter the workplace. A maximum of £2,880 can be paid per year into this, which becomes £3,600 through 20% tax relief.
For more information about how to invest in your child’s future or for an informal chat about planning your finances, get in touch.