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:
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.
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 2020 is £9000.
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:
Additional Vouchers at age 7:
Additional Savings Were:
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
Investment Risk Profiles Available: