Introduction
While money isn’t the be all and end all, it undeniably offers children a significant advantage. A nest egg can contribute towards their education, grant access to diverse opportunities, and give them a head start in their adult lives.
Saving now provides them with greater flexibility to pursue their desired paths when the time comes. It’s another avenue through which you can afford them the best possible start in life.
The cost of growing up
Raising children can be financially challenging. While families may cover many of the costs of raising young children through their income, having a financial reserve as adulthood nears can be invaluable.
As young adults approach major milestones such as purchasing their first car, attending university, or buying their initial home, significant expenses arise.
By providing support, you can assist them in pursuing their aspirations. Starting to save early ensures they’ll have greater opportunities as they grow older.
Start early
You don’t have to allocate a substantial sum each month to establish a solid nest egg for a child. The crucial step is to commence saving as early as possible.
Beginning to save when children are young offers the advantage of time. It’s remarkable how even modest amounts saved consistently can accumulate over time. The power of compounding, combined with prudent investment decisions, has the potential to substantially enhance the value of your fund as children mature.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
Savings that work for everyone
You might choose to save a modest sum monthly, or invest lump sums as it fits your circumstances.
Your choice may be grant the funds to the child/granchild at age 18, or you might prefer to maintain control for a longer period of time.
Regardless of your preferences, selecting an investment solution that provides a suitable balance of flexibility, tax efficiency, and accessibility is crucial.
Junior ISAs represent an opportunity for saving towards a child’s future. The funds are inaccessible until the child reaches their 18th birthday.
These accounts can be set up by a parent or legal guardian, however further contributions can be accepted from anyone once the account has been set up. Regular deposits or one-time payments up to the annual limit (currently £9,000) are permitted, with all income and gains being exempt from Income Tax and Capital Gains Tax.
Upon reaching the age of 18, the Junior ISA automatically turns into an adult ISA which offers further flexibility to invest or withdraw funds as desired.
Junior ISAs offer the choice between cash or stocks and shares options. While cash is perceived as lower risk, considering the potentially lengthy investment term of up to 18 years, stocks and shares Junior ISAs typically offer superior returns over time. Although it is possible to spread the risk by subscribing to both a cash Junior ISA and a stocks and shares Junior ISA – provided the annual limit is not exceeded.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.
An investment in a Stocks and Shares ISA does not provide the security of capital associated with a Cash ISA.
The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.
Please note that St. James’s Place does not offer Cash ISAs.
Another frequently overlooked option is establishing a bare trust or designated investment account for a grandchild. Typically, the funds are invested in a portfolio of unit trusts, offering the benefits of professional management, risk reduction through diversification, and tax efficiency.
This straightforward legal arrangement of setting up a bare trust is an excellent solution for grandparents seeking to invest money for a grandchild. Until the beneficiary turns 18 and assumes ownership of the investment, the grandparents retain control over the funds. Subsequently, the grandchild can independently make decisions about the plan.
Unlike a Junior ISA, there are no limits to how much you can invest in a bare trust. The assets are held by a trustee, usually the parent or grandparent, for the child’s benefit until they reach 18 (or 16 in Scotland).
As long as the investment is made by someone other than the parents, the assets are taxed as if they belong to the child, which usually means there is little or no tax to pay on any income or gains.
This information applies for bare trusts in England. Bare trusts work differently in other regions.
Payments into bare trusts are considered to be gifts for inheritance tax purposes.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.
While initiating a pension for a child might initially appear unusual, for certain families, it can be a highly astute decision.
These pensions can be established by a parent or legal guardian, with contributions welcomed from anyone once they’re set up.
The blend of tax efficiency and an investment horizon potentially spanning over 60 years presents an exceptional opportunity for wealth growth. Even a single lump sum payment into a child’s pension could significantly enhance their retirement savings and alleviate some financial burdens in adulthood.
Moreover, if concerns arise regarding how a child might utilise the saved funds, there’s the added advantage that the money will remain beyond temptation’s reach until they reach retirement age.
You can put a maximum of £2,880 into a pension for a child each year. Tax relief will boost it to £3,600.
Investing the maximum £3,600 each year into a pension fund from birth until a child turns 18 could create a pot worth £1,030,000 by age 65.*
*Assumes an annual growth rate of 5% net of charges.
These figures are examples only and are not guaranteed. What you get back will depend on your investment performance and the tax treatment of your savings. You could get back more or less than this.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
