A gift for the future: advice on investing for children
PUBLISHED: 10:35 13 January 2016 | UPDATED: 10:35 13 January 2016
Mike Williams, director and financial adviser at Kings Langley-based Chamberlain Stean and West looks at the options for investing for a child to give them a financial head start
Saving for a child is a wonderful gift for their future while getting them involved with saving helps them learn important lessons about money. In the season of giving what better time to make an investment for your children or grandchildren? It’s a gift they can enjoy long after the festivities are over.
Recent research by Tilney Best Invest, suggests that a child born today could be a millionaire by the age of 46 if the maximum amount was put into ISAs until their 18th birthday as well as their Child Pension. This extraordinary fact highlights the logic of saving from an early age. A few simple steps now could be the start of a plan that makes a world of difference to their future.
Start investing <BOLD - AND SAME FOR ALL BELOW> When investing for children, it’s a good idea to go for something that gives you exposure to a broad spread of companies and sectors. It’s important to get the right balance between good growth potential and not taking too much risk. You can hold investments on behalf of a child in a bare trust or a designated account. A designated account will be earmarked for the child but will be in your name and treated as your investment. As such, any income of over £100 will be taxed at your rate, whereas a bare trust will be treated as a child’s for tax purposes.
Set up a pension <BOLD> If you’re thinking of taking a much longer-term approach, you could take out a pension on behalf of a child and pay in regular amounts. You can currently contribute up to £2,880 each tax year. When the child reaches 18, ownership of the pension would transfer to them, and they could start making their own contributions.
Regular savings<BOLD> If you can commit to monthly contributions you can often benefit from higher interest rates with a regular savings account. They’re ideal if you’re saving for something specific and wish to drip-feed cash into an account in a disciplined way but these accounts will usually limit the number of withdrawals each year and restrict the amount you can invest each month.
Junior Individual Savings Account (ISA) <BOLD> Junior ISAs are flexible, tax-efficient and can only be accessed by the child when they reach 18. Parents can save up to £4,080 in the 2015/16 tax year and they can be held in either cash or stocks and shares or divided between both.
Child Trust Fund (CTF) transfer to Junior ISA <BOLD> Changes to CTF regulations mean investors can choose to transfer existing Child Trust Funds into Junior ISAs. Junior ISA tax advantages depend on your circumstances, so consider all the options before making a decision.
NS&I Children’s Bond <BOLD> You can invest between £25 and £3,000 tax-free for five years at a time until a child reaches 16, at which point they will gain control of the bond.
Complete an R85 form <BOLD> Make sure you complete an HM Revenue & Customs form R85, so that any interest will be paid free of tax. In the 2015/16 tax year each child is entitled to a tax-free allowance of £10,600.
Finances remain a taboo subject in many families but it can be empowering to give children skills and confidence with money. In fact there’s no gift greater than enabling a child to face a future without financial worries. Do remember of course that the value of investments and income from them may go down, you may not get back the amount invested and past performance is not a reliable indicator of future performance.
Chamberlain Stean & West is an appointed representative of Tavistock Financial Ltd, which is authorised and regulated by the Financial Conduct Authority, FCA No 466922.