We all know that thanks to the wonders of compound interest, the earlier you start saving, the more time your money has to potentially grow.
Most of us will start thinking about the future as soon as we start work – but when it is your children, why wait that long?
We look at ways to help your children be set up for life.
The Junior ISA or JISA is a tax wrapper that gives adults a tax-efficient way to save money on behalf of a child under the age of 18 who lives in the UK. You can currently put up to £4,368 a year into a JISA
As with your ISAs, the income and capital gains earned on these investments will not be taxed.
Only a child’s parent or legal guardian can open the JISA on their behalf. When the child turns 16, they will be able to take control of it but won’t be able to withdraw money until they turn 18. From this point onwards, they get full control of the account, which is rolled over into an adult ISA.
As with adult ISAs, there are cash JISAs and junior stocks and shares JISAs.
Money put into a cash JISA with a UK-regulated bank or building society and money put into a stocks and shares JISA will be protected up to the value of £85,000 by the Financial Services Compensation Scheme. It is possible to transfer between the two kinds of JISA, or from one provider to another.
The position on contributions has an interesting loophole. On top of the allowance allocated 16- and 17-year-olds can also put money into the adult equivalent of a cash ISA up to the standard allowance for an adult ISA.
What about a children’s pension?
A JISA can be a good way to start building wealth. A child’s pension could be even more rewarding as it will have much longer to grow. It may seem a strange idea, but you can open a pension for each of your children, and like your own pension it benefits from tax advantages. The government automatically applies tax relief on savings of up to £2,880 per year, per child, meaning a gross contribution of £3,600 per year.
You can start saving with small amounts and because of the tax advantages, and the growth potential of the stock market, even modest amounts can add up. Other relatives (e.g. grandparents) can also contribute.
When your child turns 18 they become the owner of the pension, they can continue to contribute or leave the savings invested.Putting some money aside now means your child can be one step ahead when they come to plan their retirement.
There is another advantage of a Children’s pension, currently your children will need to wait until they are 55 before they can access the money (however state pension age will rise and they may need to be older before that can access it), by which time you would expect them to use it sensibly.
What should you do?
Although investing on your child’s behalf is a good idea given the time it will have to accumulate, you should only do so if you have the money to spare in the first place. There’s no point putting money aside for your child’s future if you haven’t put away enough for your own.
At Continuum, we can help you decide the most suitable way for you to set your children up for life – or at the very least, to get their savings off to a good start. We can provide expert advice about tax for yourself and your offspring, and help with finding the most rewarding accounts.
To discover intergenerational wealth planning and to help you and your younger generation look forward to a more prosperous future, simply give us a call.
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.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
Investments do not include the same security of capital which is afforded with a deposit account