There are significant tax breaks to be gained when saving on behalf of your children, although as with all such schemes there are some limits and restrictions to be aware of.
Savings accounts for children are exempt from any tax on the interest that accumulates on deposits as long as the child in question does not have a total income exceeding £6,475 for the current tax year (as with adults). However, if the money which is donated by an individual parent or step parent earns more than £100 interest in a tax year then the interest will be taxed as normal. This limit applies per parent though, so in a family with both parents present, the combined possible limit is £200 and there is even the potential for the limit to be as high as £400 if two step parents are involved. What’s more, the limit does not apply to grandparents and other adults that wish to contribute to a child’s savings plan. Therefore, these restrictions should not prevent parents and guardians from accumulating a healthy nest egg for their children which also benefits from the tax exemptions.
In addition, it is worth bearing in mind that any money placed into a child’s savings account will avoid being taxed inheritance tax providing the donor does not die within seven years of making the donation.
Whilst the Child Trust Fund (CTF) is being phased out by the coalition government, it is still a valid savings solution for many parents and their children. All children born between September 1st 2002 and January 2nd 2011 were eligible to start a child trust fund if they were paid any child benefit before January 3rd 2011. For those who have already opened an account, payments can still be made into it until the child turns 18. The trust benefits from a starting contribution from the government of at least £250 (except children who first received child benefits after August 2nd 2010 who will receive £50 only) with the possibility of further contributions for children in low income families. All income and gains from the CTF will be tax free although the contributions made by parents (or any other donors) must not exceed £1,200 in the tax year. The funds are held in trust for the child and although they can take over the management of the fund when they turn 16, they cannot withdraw funds until they turn 18 years of age. At which point they will also be able to transfer the funds to an ISA to protect the tax exempt status.
The coalitions government’s replacement to the CTF is the Junior ISA which is due to launch in the Autumn. The Junior ISA will not receive the government contributions that the CTFs benefited from however it will allow parents to save on behalf of their children and take advantage of the tax exemptions and investment choices that adults can currently benefit from with conventional Cash ISAs and Stocks and Shares ISAs.
There are a few other savings solutions for children which should be mentioned including the National Savings and Investments’ (NS&I) Child Bonus Bonds and Index-Linked Savings Certificates. These plans also benefit from tax exemptions but differ in the terms for which they run and how the income is generated.
Having outlined the available options for Child Savings and their advantages, time should also be spent considering why it is beneficial to save for your child’s future.
The recent fracas that has surrounded the coalition government's revamp of the tuition fee structure has brought the issue sharply into focus for many parents who must now be wondering how they will give their children the best possible foundation to make the most out of their higher education and deal with the financial consequences when they come out of the other side. One thing that seems certain is that tuition fees are here to stay in some shape or form as all three major political parties in England at least have backed a incarnation of the fees.
For many of course, University may not be may not be the primary consideration. It could also be argued that, even if it is, should the policies surrounding tuition fees remain as they are today, the nest egg you save for your child would in fact be best used to lay the foundation for their post university lives. Therefore attention turns to equipping your children for their professional adult lives.
The current climate means that it is harder than ever for first time buyers to get onto the property market. The days of easily obtained 100% mortgages have gone and financial institutions (and the public) may be wary of them being re-introduced due to the troubles of the credit crunch and subsequent recession. The focus has really come back onto having a substantial deposit. Whilst prices have come back down to some extent they have not fallen drastically and will no doubt creep back up the stronger the economy gets. Arguably the difficulty for first time buyers to get onto the market only seems likely to increase. Meanwhile, with oil prices rising, and consequently the cost travel, food etc, there are plenty of reasons to give your children the best head start possible whn the time comes.
Having painted a slightly gloomy picture of the prospects for our future generations you may wonder whether you can accumulate an amount which will really make a difference, especially at a time when budgets are already being squeezed by the cost of living. It is worth emphasising therefore that a little amount can go a long way. The earlier you start Saving for Children the greater the potential for growth that those savings have. What’s more, any amount will start your child’s adult life on a positive footing rather than encouraging them to begin in debt.
Savings accounts for children are exempt from any tax on the interest that accumulates on deposits as long as the child in question does not have a total income exceeding £6,475 for the current tax year (as with adults). However, if the money which is donated by an individual parent or step parent earns more than £100 interest in a tax year then the interest will be taxed as normal. This limit applies per parent though, so in a family with both parents present, the combined possible limit is £200 and there is even the potential for the limit to be as high as £400 if two step parents are involved. What’s more, the limit does not apply to grandparents and other adults that wish to contribute to a child’s savings plan. Therefore, these restrictions should not prevent parents and guardians from accumulating a healthy nest egg for their children which also benefits from the tax exemptions.
In addition, it is worth bearing in mind that any money placed into a child’s savings account will avoid being taxed inheritance tax providing the donor does not die within seven years of making the donation.
Whilst the Child Trust Fund (CTF) is being phased out by the coalition government, it is still a valid savings solution for many parents and their children. All children born between September 1st 2002 and January 2nd 2011 were eligible to start a child trust fund if they were paid any child benefit before January 3rd 2011. For those who have already opened an account, payments can still be made into it until the child turns 18. The trust benefits from a starting contribution from the government of at least £250 (except children who first received child benefits after August 2nd 2010 who will receive £50 only) with the possibility of further contributions for children in low income families. All income and gains from the CTF will be tax free although the contributions made by parents (or any other donors) must not exceed £1,200 in the tax year. The funds are held in trust for the child and although they can take over the management of the fund when they turn 16, they cannot withdraw funds until they turn 18 years of age. At which point they will also be able to transfer the funds to an ISA to protect the tax exempt status.
The coalitions government’s replacement to the CTF is the Junior ISA which is due to launch in the Autumn. The Junior ISA will not receive the government contributions that the CTFs benefited from however it will allow parents to save on behalf of their children and take advantage of the tax exemptions and investment choices that adults can currently benefit from with conventional Cash ISAs and Stocks and Shares ISAs.
There are a few other savings solutions for children which should be mentioned including the National Savings and Investments’ (NS&I) Child Bonus Bonds and Index-Linked Savings Certificates. These plans also benefit from tax exemptions but differ in the terms for which they run and how the income is generated.
Having outlined the available options for Child Savings and their advantages, time should also be spent considering why it is beneficial to save for your child’s future.
The recent fracas that has surrounded the coalition government's revamp of the tuition fee structure has brought the issue sharply into focus for many parents who must now be wondering how they will give their children the best possible foundation to make the most out of their higher education and deal with the financial consequences when they come out of the other side. One thing that seems certain is that tuition fees are here to stay in some shape or form as all three major political parties in England at least have backed a incarnation of the fees.
For many of course, University may not be may not be the primary consideration. It could also be argued that, even if it is, should the policies surrounding tuition fees remain as they are today, the nest egg you save for your child would in fact be best used to lay the foundation for their post university lives. Therefore attention turns to equipping your children for their professional adult lives.
The current climate means that it is harder than ever for first time buyers to get onto the property market. The days of easily obtained 100% mortgages have gone and financial institutions (and the public) may be wary of them being re-introduced due to the troubles of the credit crunch and subsequent recession. The focus has really come back onto having a substantial deposit. Whilst prices have come back down to some extent they have not fallen drastically and will no doubt creep back up the stronger the economy gets. Arguably the difficulty for first time buyers to get onto the market only seems likely to increase. Meanwhile, with oil prices rising, and consequently the cost travel, food etc, there are plenty of reasons to give your children the best head start possible whn the time comes.
Having painted a slightly gloomy picture of the prospects for our future generations you may wonder whether you can accumulate an amount which will really make a difference, especially at a time when budgets are already being squeezed by the cost of living. It is worth emphasising therefore that a little amount can go a long way. The earlier you start Saving for Children the greater the potential for growth that those savings have. What’s more, any amount will start your child’s adult life on a positive footing rather than encouraging them to begin in debt.
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