We all want to try and give our children the best possible start in life, but with so many options to choose from when saving or investing for your kids, it’s sometimes hard to know what to do!
Tax efficient options such as Child Trust Funds (CTFs) and Junior ISAs have the interest paid tax-free. The money doesn’t belong to the child until they’re 18 and can’t be accessed until then, so they’re not always the most convenient option.
With standard savings accounts you’ll get lower rates, and any interest earned is likely to be taxable. But, as a parent, you’re able to keep tabs on the account as there’s more flexibility for withdrawals and transfers from when the account is opened.
Junior ISA’s are a great opportunity to make tax-free savings investments for your kids. They work in the same way as regular ‘adult’ ISAs, with a maximum investment limit for 2015/16 of £4,080. And recent changes have made it possible for more people to take full advantage of them.
Before April 2015, you could only take out a Junior ISA if your child didn’t hold a CTF, but now any children who are UK residents will be able to hold Junior ISAs. And you’ll be able to transfer money from CTFs over to them. So parents of young savers who were stuck with accounts yielding poor interest rates will now have the freedom to look for a better return on their investment, pay lower charges and have more product choice!
Although you can transfer savings from a CTF to a Junior ISA, it’s worth considering whether this is the best option. This depends on whether your child pays tax currently, and whether they’ll have saved enough money to pay tax on it when they turn 18. If you think they may have saved more than £15,240 in the first 18 years, which is the annual ISA limit from 6 April 2015, then it’s worth thinking about a Junior ISA as they become full cash ISAs from their 18th birthday.
The interest rate on offer and the potential return on investment are two of the most important considerations when deciding where to put money for your children’s future. Under 18’s are entitled to an annual personal allowance of £10,600 for 2015/16 and although Junior ISAs and CTF’s are tax-free, your child shouldn’t pay tax on interest earned anyway, unless they earn interest of more than £10,600 from any other investments.
There’s lots of choice out there, and if you’d like to discuss the options further please do get in touch on 01782 279615.