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Building Wealth from a Young Age
As we live longer, careful and well-thought-out planning could become crucial in helping the next generation to secure financial well-being in a world worth living in. Saving for the future of your family need not break the bank, time is on your side, and you have the opportunity to make a huge difference. There are a number of ways that you can financially invest in your children’s or grandchildren’s future to help them out when they reach a certain age.
Children’s Savings Accounts
Child savings accounts are available through most banks and building societies and need to be opened by someone who has parental responsibility. A savings account has a simple opening process, and the funds can be added to and accessed at any time. Paying what you can afford into a savings account each month means that even modest amounts can benefit from the effects of compounding and help reduce the risk of investing significant amounts at the wrong time or during periods of market volatility.
Junior ISAs (JISA)
A Junior ISA, also known as a Junior Individual Savings Account or JISA, is a tax advantaged savings option for children under 18 in the UK. The flexibility and tax advantages of a JISA make them a strong consideration for first-time investors, as any returns are free from both Income Tax and Capital Gains Tax. Savers can typically make regular or one-off payments, up to the current annual limit of £9,000, where money is locked in until the recipient turns 18 and they are permitted access to the funds or allow the account to convert into an adult ISA.
If you are interested in setting up a Junior ISA for your child or children, speak to one of our professionals who will be able to work with you to set one up and manage it.
Pensions for Minors
It might sound odd to think of your child in retirement, but a well-kept secret, is that as long as they have been born, there is no age requirement on a pension . A minor is subject to the same limits on tax relief [the higher of £3,600 and 100% of relevant UK earnings; capped by the annual allowance]. After many years of compounding returns, a pension has the potential to significantly boost retirement savings and has the advantage of being untouchable until reaching retirement age. It might seem a bit eager to set up a pension for your child, but it encourages long-term investment, enabling more growth.
A parent or legal guardian manages a pension for minors until the child is 18.
NS&I Premium Bonds
NS&I (National Savings and Investments) Premium Bonds for children is a savings product in the UK that allows adults to buy Premium Bonds on behalf of children under 16. These bonds don’t earn interest but are entered into a monthly prize draw where they have the chance to win tax-free cash prizes ranging from small amounts to a million pounds. Bonds can be cashed at any time, but the chance of winning varies with the number of bonds held.
Anyone can buy these on behalf of a child, but a parent or guardian must be nominated to look after the bonds and must also agree to have any prize money won reinvested in more premium bonds.
Trusts
If you would like to contribute toward a child’s finances in the future, a bare trust or ‘designated investment account’ can be arranged for a child or grandchild, so they will have money coming to them once they reach a certain age. Bare trusts or unit trusts designate the child becomes the legal owner at age 18, but access is usually allowed for education maintenance and welfare prior to age 18 for the child.
Assets are held by a trustee (usually a parent or relative) until the child reaches 18, and as long as investments are made by someone other than the child’s parents, assets are taxed as if they belong to the child. A portfolio of unit trusts offers an ideal investment solution with diversification, professional management and tax efficiency.
Gifting
Gifting is a tax-efficient way of creating an investment fund for your beneficiaries while potentially reducing the value of your estate for Inheritance Tax (IHT) purposes.
The difficulties facing younger people joining the ranks of homeownership are well-reported, with renting often now stretching well into one’s thirties and beyond. Consequently, an increasing number of parents and grandparents are stepping in to help children onto the housing ladder, by creating a Gift Plan comprised of an investment bond. Gifting this will include the annual allowance of £3,000 and depending on whether the gift is outright as this would be a potentially exempt transfer for IHT or a Chargeable Lifetime Transfer for IHT if gifted to a discretionary trust (this would be subject to the available Nil Rate Band) The donor would need to survive for 7 years in order for it to be outside of the estate for IHT.
Create a plan with our financial advisers
Strategy is key to a successful investment for your child and their future.
Our financial advisers team can help you build wealth for your children using the various options available.
Call us on 01202 695 801 or complete our contact form to book a no-obligation meeting with us to discuss what your goals are and which investment options are suitable.
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.
An investment in equities does not provide the security or capital associated with a deposit account with a bank or building society.
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.
Written By Catherine Scard
Financial Adviser
Lester Brunt Wealth Management
Lester Brunt Wealth Management is a trading name of Lester Brunt Wealth Management Ltd
SJP Approved 20/03/2024