Even with professional help from your Continuum adviser, matters of finance can cause us all concerns from time to time.
But we have to ask the question, how will things be for our children? The cost of buying a home has increased out of all proportion in the last 30 or so years. How high will they go in the next 30, and how will your children find answers to help them deal with the costs of university, family life and even retirement?
Fortunately, at Continuum, we have some answers.
When it comes to saving for the future, it’s always true that the earlier you start, the easier it can be. Time works to build the money you put in, and a smaller contribution could potentially grow into a larger pot if you simply start early enough.
Of course, if your children are still at school – or perhaps have not even started their education, there is not a great deal they can do themselves to get on the investment ladder. But with some help from us at Continuum, there is a great deal that you can do for them.
We look at the best ways to get your children off to a good financial start.
When gifting money to a child it’s important to consider the tax implications. That is why it is vital to plan how you save with a financial adviser.
A Junior ISA (or JISA) provides the tax-efficiency of ISA investment for under-18s. There’s no UK tax to pay on any growth or income. Both Cash and Stocks and Shares JISAs are available, and the potential of Stocks and Shares in the current low interest environment may make it a more rewarding approach than cash.
Once an account is set up by yourself as a parent or legal guardian, friends and family can pay in, making it ideal for Christmas and birthday presents, and when they turn 18, the child can either access the money, which could be ideal for helping with education costs or alternatively they can simply convert it into an adult ISA, making it a simple way to start building an investment portfolio.
From this tax year (2020/2021), the allowance has more than doubled to £9,000, making the JISA an even more effectiveway to get a child off to a good financial start.
Junior Investment Accounts
A Junior Investment Account is a type of trust fund, technically known as a “bare trust”. Unlike Junior ISAs, which can only be opened by the child’s parents or legal guardian, a Junior Investment Account can be opened by grandparents, family or even friends.
There are no limits on what you can put in, but a Junior Investment account does not offer the same benefits as a JISA, and there will be tax to pay – and if income generated from a gift by a parent is more than £100 per year, it’s taxable on the parent, not the child. The money can be taken out at any time by the trustee, but it must be used for the benefit of the child.
Junior Investment accounts may have their drawbacks – but they also have their uses, especially if estate planning needs to be considered.
Junior pensions – and SIPPs
It may seem odd to think about a pension for a child, but the tax benefits that pensions attract can make them particularly rewarding.
You can invest up to £3,600 gross per child each tax year. The government will pay 20% tax relief (up to £720 into the pension) so this will only cost you £2,880. Under current rules, your child won’t be able to access any money in a pension until they reach 55. This will rise to 57 by 2028, and the rules are likely to change further between now and your child’s retirement – but it is probably safe to say that pension investment will continue to ensure that the cash will be protected from the foolishness of impetuous youth.
There are many managed pension plans available to get children off to a head start, but if you are an experienced investor, you may want to consider a Junior SIPP – or Self-Invested Personal Pension – which will allow you to select exactly how the money is invested. Like a Junior ISA, the investments inside a Junior SIPP are free of UK income and capital gains tax.
What should you do?
JISA, trust investment or pensions all have their advantages and some potential disadvantages, and in the current climate, you will want to tread carefully and get advice before making any decisions.
You could even select more than one option, perhaps opening a Junior ISA to help them cover the cost of university, a trust to help them get on the housing ladder and a Junior SIPP for the long term.
Getting the advice and help you need is simple. You can call us at Continuum to find answers for your children’s future as well as your own
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
The Financial Conduct Authority does not regulate taxation and trust advice, university/school fees planning or deposit accounts.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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