Having children can be expensive and at times they seem to grow up with sole intent of bankrupting Mum and Dad. When they finally become adults and make their own decisions in life sometimes the financial burden that you carried since birth does not go away. Whether they further their education and go to university get married or eventually fly the nest as parent we feel obliged to give our children the best start in life.
Saving early can help with the financial drain our children put on us throughout their lives. Some simple early planning can help. There are a wide range of savings options that are available and it is important to seek professional advice before. Contact an independent Financial Advisers who can guide you through the options available. Below are some of the common ways to save for your childs future.
Frequently Asked Questions
Child Trusts Funds are tax efficient savings accounts allowing you to save for your childrens future. For those children that are eligible the government will provide a £250 voucher £500 if income is no more that limit for Child Tax Credit. A maximum of £1200 can be saved within a Child Trust Fund by parents family or friends. No access to the account is allowed until the child reaches their 18th birthday at which point the proceeds of the account goes directly to the child to invest or spend as they wish.
Cash ISAs are a flexible tax-efficient way to save for your child's future. ISAs aren't available for children but you could use your allowance to save for them and any income or capital gains you receive will be tax-free. Once they reach the age of 16 years they can open their own cash ISA to boost their financial future. Currently you can contribute up-to £3600 per year.
Tax-Exempt Friendly Society Plans
As the name suggests Friendly Society plans are tax free at maturity. Given the special tax treatment these plans enjoy they are limited to the level of contributions that can be made into these and are restricted to a maximum £25 per month or £270 per year per individual.
These are essentially savings plans and are designed to run for at least 10 years early withdrawals may be subject penalties. Contributions are generally invested in stock market based investments and therefore there is no guarantee on the return.
National Savings & Investments
These are regards as low risk and are backed by HM Treasury. There are a number of products to suit different needs and these range from Premium Bonds where these can be bought for and on behalf of children to Childrens Bonds and Savings Certificates. Considered safe and secure but if interest rates remain low possibility that some of the interest paid may be less than the rate of inflation.
A unit trust is a collective investment fund and should be considered as a medium- to long-term investment of five years and beyond. Unit trusts vary in risk profile from relatively cautious to highly speculative. Over the medium to long term on average they have provided a better return than money held on deposit although no one can predict how future performance will affect the future returns. Can be opened on behalf of a child and when they reach the age of 18 years can be transferred over to them.
Starting a pension for your children or grandchildren may sound extreme but it could be an excellent way to take advantage of the potential for longer term growth. A contribution to a stakeholder pension qualifies for basic rate tax relief. You can currently take out a stakeholder pension in a child's name from birth and contribute up to £2880 net minimum generally £20 per month each tax year into the plan. HM Revenue & Customs will add basic rate tax which will bring the total invested annually up to a maximum of £3600.
Once invested you do not have access to any of the money until the minimum age which is currently 55 50 until 2010. However with all the discussion on the future of pension in retirement giving something now may mean a lot more in the future.
Everyone has their own personal and capital gains tax allowance to which they can earn money without paying any tax. This is the same for children. You must be aware that if you invest on behalf of your child in your name then the maximum that you can earn on the interest/income is currently limited to £100 per annum.
The value of tax savings will depend on your individual circumstances and all tax rules may change in the future.