27th September 2017 at 3:00pm
Ask any parent and they’ll agree on one thing. One minute your children are toddlers and almost before you know it, they’re going to university, or planning to buy their first property.
Whether you save little and often, or have bigger sums of money to invest, keep going over a few years and you can build up a really useful amount.
It can go a long way to setting them on the road to becoming independent or helping them with university or housing costs. You might even encourage them to become savers.
We take you through five smart ways to save for your children’s future.
1 – Children’s savings accounts are simpler now
They’re easy to access, save into and pay some interest.
A recent change for all savings accounts – including children’s – is that tax isn’t deducted before interest is paid on your savings. There’s no need to reclaim tax if you’re a non-taxpayer and tax only has to be paid if the interest is more than your tax-free allowances.
But it’s worth being aware that there are special rules when parents save for their children. If the interest they get is more than £100 in a tax year, as the parent you’re liable for any tax due on it.
You won’t pay any tax if the interest is within your Personal Savings Allowance. It’s £1,000 for a basic-rate tax payer and £500 for a higher-rate tax payer.
Of course, the value of investments like ISAs, JISAs, pensions and trusts can go down as well as up and may end up worth less than was paid in.
2 – Consider a Junior ISA
One with longer-term saving in mind, you can save up to £4,128 for each of your children under 18 into a Junior ISA this tax year. Choose a cash or a stocks and shares Junior ISA and any interest is tax free.
If you have an old-style Child Trust Fund, you’d need to transfer it into a Junior ISA as you can’t have both.
Do be aware that when they turn 18, your children can spend their Junior ISA savings how they want to. It’s their money.
3 – Use your own – bigger – ISA allowance
You might want to use your own ISA allowance to save for them to keep more control. It’s £20,000 this tax year (2017-18) and could be a brilliant way to save tax free for their future without handing them too much responsibility, too soon.
You and your spouse or partner can each save up to £20,000 into an ISA. It’s up to you how much of that is in stocks and shares or cash, or a bit of both.
When it comes to access, you can usually take money out of your ISA when you want to – but do check first.
To get an idea of what your ISAs could be worth in future, use our ISA calculator.
4 – It’s true, you can start a pension for your child
How about saving into a pension for them? Yes, you need to take a very long-term view but just think of what all those years of saving could add up to.
Investing a little in a pension for them when they’re very young can make a big difference later on thanks to the compounding of any investment growth over many years.
Those pension savings could give them an income or lump sums when and how they want. It could even be used to fund their own children’s education and build up their own family wealth.
It’s a very tax-efficient way for you to save too. Pay in up to the maximum of £2,880 each year and the government tops it up with tax relief to £3,600. It all adds up rather nicely.
5 – Saving for your children’s or grandchildren’s future? How you can stay in control
If you’re a parent or grandparent who wants to give away some money now but control when the children get it, you might want to consider setting up a trust.
This is where the money is controlled by trustees who manage the investments. There are different types to suit what you want to do and how much control you want to keep.
When it comes to tax planning, we’d recommend you consider taking expert advice to stay on track here, particularly when it comes to trusts and inheritance tax.
Laws and tax rules may change in the future, and the information here is based on our understanding in September 2017. Your personal circumstances also have an impact on tax treatment.