Children Savings

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 and they are all now converted to Junior ISAs.

Junior ISA - Maximum Yearly Contribution tax year 2024 is £9,000.00.

• No government contribution, but any individual may contribute.

• The maximum overall contribution is currently £9,000.00 per tax year.

• This limit usually rises in line with the CPI inflation each year.

• The JISA has two investment components – cash or stocks and shares and there are no restrictions on how a contribution can be split between the two.

• Withdrawals before age 18 are only allowed in restricted circumstances.

• The tax free benefits are the same as adult the ISAs.

• In addition, there is no personal liability on income generated from contributions made by you as a parent.

• Where can I get one?  Most banks and investment companies offer a Junior ISA.  Given that they are long term investments, we suggest you contact us for advice to get the most suitable one for you and your child.

3.  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 6th 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.

4.  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.

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.

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

Additional Savings Were:

• £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

Tax Benefits:

• 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

Request expert advice.

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