Investing For Children

investment for childrenIt’s often said that, whilst we may not be able to prepare the future for our children, we can at least prepare our children for the future. With this thought in mind, many parents and grandparents are looking for ways to save for the big events in a child’s life – schooling, university or even a deposit for a first property.

Tax-Efficient Savings

Junior ISAs (JISAs) are a tax-efficient way to build up savings for a child. Contributions of up to £4,080 annually (tax year 2016–17) can be saved into a cash JISA or a stocks and shares JISA.

Generally speaking, they work in a similar way to adult ISAs in that interest on cash is paid tax-free, and there’s no capital gains tax to pay on stocks and shares on encashment. They can also be transferred between providers to get a better return.

However, unlike adult ISAs, children can’t take out a new JISA every year.

One significant advantage of a JISA is that once it’s been opened by the parent or guardian, anyone can make contributions, including grandparents, friends and family.

Children gain control of their JISA at age 16 and can withdraw the funds from their 18th birthday. At that point, the account is automatically rolled over into an adult ISA, a valuable facility for those who want to continue saving or investing tax-efficiently.

How Pension Pots Can Help

Using your pension pot could be a tax-efficient way of raising funds. Parents can take up to a quarter of their pension fund as a tax-free lump sum when they reach 55. Whilst few will be able to retire this young, it’s possible to take the lump sum and continue working. If this is too late, then there are other options.

There are a variety of ways to save and invest for the big financial events in the lives of children and grandchildren; it pays to get some good advice.

It is important to take professional advice before making any decision relating to your personal finances. Information within this blog is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation, are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of investments can go down as well as up and you may not get back the full amount you invested.

The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.