Children are a blessing in any family – and you can both help them and use them as part of your family wealth plan. It’s family wealth planning for your children, and yes, it is quite easy to help make your children millionaires! So how can you use your children or grandchildren in your wealth plan, and how can you help them to have a better financial future? This blog article is all about helping your children – and please see our companion article about ‘how to use them in your remuneration and tax efficiency plan’: https://www.jvca.co.uk/family-wealth-planning-that-includes-your-children/
Knowing how to help your children to have a better financial future is something I think lots of parents would like to find out about, but so often there is no thought given to doing it. However, one or two simple things that can make a huge difference. Either parents or grandparents (or aunts/uncles) can help to build a better financial future for your children with some simple investments. So what are these simple things?
Children’s ISAs
Children’s or Junior ISAs are just like the adult version – a way of saving up money within an income and capital gain tax free environment. The amounts that can be invested each year are more limited and at the time of writing is £9,000pa. One point to remember is that at age 18 this is automatically converted into an adult ISA and the child has full access and rights over the funds.
Children’s pensions
Children’s pensions have long been seen as a way to make a financial difference to your children’s future. The amount that can be invested is a maximum of £3,600 gross or £2,880 net of tax relief. Once they have pensionable income the normal contribution rules come into place. Like all pension savings, the individual can’t get access to the pot until retirement age, which makes this a great safety net to put in place. Because of this, the monies you invest will have a long investment period – 50 to 60 years! – which often makes a modest initial investment really worthwhile.
Premium bonds
Investing in premium bonds for your children or grandchildren is another great way to build up future wealth. Like every UK resident individual the total investment limit is £50,000. Premium bond winnings aren’t guaranteed, but they are tax free! There is one important point to note and that is that the child gets access to the investment at age 16.
Investment portfolio
As the parents or grandparents you can set up an investment portfolio in your child’s name … ie with the adult acting as bare trustee or designated account holder. One point for parents to be careful of is that any income beyond the first £100pa coming from funds provided by the parents will be taxed on the parents. This makes it more appropriate for grandparents to do than parents – or to choose funds that roll up any income or gains.
Deposit Accounts
As the parents or grandparents you can set up a simple savings or deposit account for your child or grandchild. Note that until the child is old enough this account is in both the child’s and the adults name …with the adult acting as a bare trustee over the funds and the child getting full access to the funds at age 16. This is one of the easiest things to do – this isn’t as helpful as investing through a Junior ISA, but there aren’t any cash limits. One point for parents to be careful of is that any income beyond the first £100pa on from funds provided by the parents will be taxed on the parents, so again, it makes more sense for grandparents to do than parents.
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