How can you Help your Childs Financial Future
“Presenting” your child with a better future… what you can do to help- With hefty deposits now required to buy a property and students facing soaring university tuition fees from 2012, our next generation may find their future financially challenging. As a parent starting to save early will give you the best chance of providing your child with a great financial head start. Here we look at the various ways in which you can get your child off to a flying start.
1. The Child Trust Fund (CTF)
CTFs were scrapped in 2010 and the scheme shut to any new saver in January 2011. However, any existing CTF will remain open until maturity. Parents with an existing CTF can save up to £3,600 a year tax-free on behalf of their child and parents can choose between cash or investment funds. Although the scheme has been abolished, it is still important to review the performance and consider switching to another CTF, if interest rates have fallen or returns are poor.
2. The Junior ISA
1st November 2011 saw the launch of the new Junior Individual Savings Accounts (ISAs). They have been introduced since the Child Trust Fund (CTF) was abolished to encourage further saving for children.
The annual, tax-free, savings limit for these accounts is currently £3,600. They are only available to children under the age of eighteen without a Child Trust Fund (CTF). Therefore any child born after 3 January 2011, or before 1 September 2002 will qualify.
Money can be invested into a cash account or a stock market-linked plan. Figures from Fidelity, the fund manager, recently indicated that if parents invested the full allowance each year (based on 2 per cent inflation) into a Junior ISA from birth, assuming an annual growth of 5 per cent, a child could end up with savings of up to £139,939.78 when they reach 18.
Unlike CTFs, the Government will not make any contributions and they will not allow transfers between CTFs and Junior ISAs under current rules. Nevertheless, parents and grandparents are being urged to take full advantage of the accounts, especially as they are tax-free and cannot be accessed until the child reaches eighteen.
3 A savings accounts
One of the most flexible ways to save for a child is using a conventional savings account. You pay in a regular amount into the account each month and your child will earn a preferential rate of interest. Even in today's market, it is still possible to earn 6 per cent on this type of account.
You could also consider premium bonds. These are investments where, instead of interest payments, investors have the chance to win tax-free prizes. Anyone aged 16 or over can invest in premium bonds but they can only be bought for a child under 16 by their parent, guardian, grandparents or great-grandparents. *The Financial Services Authority does not regulate national savings.
4 Investments
Another option is to make regular savings into equities on behalf of your child. You could consider unit trusts and Open-Ended Investment Companies (OEICs) for example. However, do remember that investment funds cannot be owned directly by anyone under the age of eighteen.
5 Tax
When saving for a child, you must still be aware of their personal tax allowance, which in the current tax year is £7,475. Also remember that a parent gifting money to their child will have to pay tax if the interest exceeds £100 per year. This rule does not apply to grandparents, aunts or uncles. Please do make an appointment with us for further information.
6 Trusts
A trust can be set up at different times for a different number of reasons. A trust allows a person – the settlor – to place assets in trust for the benefit of one or more individuals called the “beneficiaries.” There are several types of trusts. Maintenance Trusts are particularly useful to pass on an asset at an exact date or occasion. As an example, a child could be given access to the income at age 18 and the capital when they reach age 25. The gift is also considered a Potentially Exempt Transfer (PET) from Inheritance Tax (IHT).
7 Pensions
Yes, this may seem too far in the future to worry about, however one of the most tax-efficient ways of saving for children is through a pension and your child will not be able to access the money until they reach the age of 55.
For a child, you can save up to £2,880 into a pension each year and basic-rate tax relief is automatically added, which increases the investment to £3,600. This can be done through a wide number of options, again, please do speak to us to discuss those available to you.
Please speak to one of our expert advisers at Welbeck Group for further news and information regarding your investment opportunities – Welbeck Group can advise clients accordingly, so please call us on 0207 776 2135 or e-mail marketing@welbeckgroup.co.uk to