Children's Savings - Many parents want to save for their children.
It is possible to take out savings plans either in the child's name or in the name of the parent.
Suitable savings plans for children today:
- Junior ISA (from 1 November 2011)
- Child Trust Fund (Children born 1 September 2002 - 2 January 2011)
- Friendly Society Plans
- Cash Investments
- National Savings
- Children's Pensions (yes they can have one)
Most investments that are suitable for the normal non-taxpayer are also suitable for children given that they can either be paid gross of taxes or tax can be reclaimed.
For help setting up children's savings contact us.
1. Types of Childrens Savings
We have a number of child savings models that we can help arrange that will ensure your children's future is secure.
We have also written a number of specific funding models for planning for children's education right through to university.
2. Child Trust Fund
Factfile: Child Trust Fund Account
Launch date: 5 April 2005 (for children born between 01/09/02 and 02/01/11)
Payable to: All children born on or after 1 September 2002 - Ceased on 2 January 2011 and replaced by Junior ISA but continues currently for qualifying children although likely to be merged with the Junior ISA.
Amount payable at start:
- £250 voucher issued per child from 5 April 2005
- £250 extra voucher payable to lower income families on Child Tax Credit at start i.e. a total of £500 for a lower income family child
- Vouchers are backdated and inflation adjusted for children born between 1 September 2002 and 5 April 2005
Additional Vouchers at age 7:
- £250 voucher for all children at age 7
- £250 extra voucher payable to lower income families on Child Tax Credit at age 7 i.e. another total of £500 for a lower income family child
- £1,200 per year - Parents, family and friends can invest an additional £1,200 per year in the account for the child
Control: Child takes control of account and makes own decisions on the account at age 16
Withdrawals: No person, adult or child, can withdraw funds until child reaches 18 years of age
- Free of income taxes
- Free of capital gains taxes
Investment Risk Profiles Available:
- No Risk funds available
- Low Risk funds available
- Medium Risk funds available
- Medium to high risk funds available
- High risk funds available
Where do I invest the vouchers?
3. JISA Junior ISA Individual Savings Account
One of the earliest decisions of the Coalition Government was to scrap contributions to Child Trust Funds (CTFs), producing a saving of about £550m a year. In spite of the ‘free’ contribution of up to £500 from the government, almost a quarter of CTFs were opened by HMRC under default provisions because the CTF voucher was unused a year after its issue.
The final birth date to qualify for a CTF contribution was 2 January 2011.
CTFs for children born by that date will run until age 18, as planned. While no further government payments will be made, parental and other contributions are possible, subject to a total maximum of £3,720 per year in 2013/14 (£3,600 2012/13).
The Junior ISA is a replacement investment for all children not eligible for a CTF.
Junior ISAs JISA
Started 01/11/2012 - Maximum Contribution £3,600
- No government contribution, but any individual may contribute.
- The maximum overall contribution is £3,720 per tax year.
- This limit will rise in line with the CPI from 2013/14.
- The JISA has two investment components – cash or stocks and shares – but unlike the adult ISA there are no restrictions on how a contribution can be split between the two.
- Withdrawals before age 18 are only allowed in very restricted circumstances.
- The tax free benefits are the same as adult ISAs.
- In addition, there is no personal liability on income generated from contributions made by you a parent.
And 16-17 ISAs, continue
The introduction of JISAs does not mean an end to the availability of full cash ISAs for 16-17 year olds, which are subject to the usual cash component limit £5,760 (£5,640 in 2012/13). Quite why 16 and 17 year olds can put more into Adult cash ISAs rather than Junior ISAs is not clear.
4. School Fee Planning
Private education and the costs of it can be a worry to parents who feel that they would like their children privately educated, but do not think they will have the funds to do it.
Cost £120,000 per child?
On average, school fees rise by 6% a year, which is over the rate of inflation. Let us assume, that the average term cost at a good preparatory school is £3,000 per term, that is a yearly cost of around £9,000 per year.
Allowing for inflation, that would mean a total cost to fund your child up to finishing sixth form college of just short of £120,000.
Fund from income or invest?
Research says that most people try to fund education costs from income or through second mortgages. Not many people consider school fee planning.
The earlier you plan for education costs, the less it will impact on your finances and the more choice and flexibility you will have.
5. School Fee Savings Plans can be used to plan for the costs of education.
These are usually insurance company policies designed for growth that are set to mature after a set number of years. Many investments can be segmented into a number of different plans inside a policy.
As each plan matures, it aims to provide the amount of money required for that years fees.
School fees can be paid for in advance by using a school fees EducationTrust.
A lump sum of money is paid into the trust on behalf of the child. It is the trust that pays for the fees when they are needed. Fees can be pre-paid from one term to 15 years.
These trusts used to enjoy charitable status meaning that they were tax efficient. However, the Government removed this in 1996, meaning that plans taken out since 20th June 1996 will produce lower returns as they suffer taxes.
This does not mean that setting up an education trust for loved ones is a bad thing..
There are many types of trust fund that could be established to plan for school fees and even beyond.
Do not forget about university fees funding
Research says that most people try to fund education costs from income or through second mortgages.
Not many people consider university plans. Given that many people are required to fund much of their university tuition fees on top of accommodation costs, the average student leaves University with debts in excess of £12,000.
Start funding for those fees now:
The earlier you plan for education costs, the less it will impact on your finances and the more choice and flexibility you will have. There are many ways to save, for fees funding.