Whether you are just taking your first steps into parenthood or already have a teenager or two on your hands, the sooner you start saving, the bigger the financial helping hand you should be able to provide them as they set off into adulthood.
With the cost of gaining a university education on the rise and the first rung on the property ladder getting ever harder to reach, your children are far more likely to struggle financially than you were. Fortunately, with a little foresight and planning you should be able to guide and assist them when the time comes.
The power of compound interest means that even relatively modest amounts invested over long periods could provide greater returns. But it pays to start now, as even two or three extra years at the beginning of an investment term could give better potential returns. Passing money on to your children now (you can gift up to £3,000 each tax year free from Inheritance Tax) has the additional benefit of taking these sums out of your potential Inheritance Tax liability.
Your child has the same personal allowance as an adult (£11,850 in 2018/19) and no tax will therefore be payable on any interest or dividends up to this amount. However, you may prefer to keep money invested for your child's future in your own name in order to maintain a greater level of control. If your child was born between September 2002 and 2 January 2011 they will have received a minimum of £250 from the Government to start a Child Trust Fund, a long-term tax-free savings account specifically for children. Child Trust Funds have now been replaced by Junior Individual Savings Accounts (Junior ISAs), if your child has one set up you can continue to add up to £4,260 a year with no tax payable on the income or profit the Child Trust Fund makes, or transfer the money to a Junior ISA.
Junior ISAs provide the opportunity to invest up to £4,260 per year, with no tax payable on interest, dividends or capital growth, in your child’s name during the 2018/19 tax year, either as cash or as an investment in stocks and shares.
You should keep in mind that money in Child Trust Funds and Junior ISAs is tied up until the child turns 18, and when they do the money passes to them to spend as they wish.
If the intention is to save throughout your child's early years, investing in stocks and shares on their behalf may be an option worth considering, although this will depend on your personal circumstances and attitude to risk. Public companies often provide that minors may not hold their shares, although there is no statutory provision in law prohibiting children from share ownership. An alternative is to put shares in your own name and pass them on to your children as a gift when they reach adulthood – there is no stamp duty payable and no inheritance tax liability provided you live for seven years after the date they are passed on. However, you need to bear in mind that returns are not guaranteed and you could end up with less money than when you started, so think carefully before investing any significant amount of money.
As with all aspects of having children, it pays to plan ahead.
Early financial planning with a Private Banking and Advice Manager could help secure the future you’d like for your children.
Investment advice is provided by Lloyds Bank plc.
Tax treatment depends on individual circumstances and may be subject to change in the future.
For access to advice from a Private Banking and Advice Manager, you’ll need at least £250,000 in savings, investments and/or personal pensions and/or a sole annual income of at least £250,000.
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