Every parent wants to ensure their children have the best chance at success. And since life is expensive – education, weddings, homes – if you can afford to help your loved ones get a head start on their finances, who wouldn’t jump at the opportunity?
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
The best way to provide financial assistance will differ depending on when you start, how much you want to give, and when you’d like to gift it, but there are plenty of options. Let’s take a look at some of the ways you can kick-start your children’s – or even grandchildren’s future.
Junior Individual Savings Account (JISA)
A JISA is a tax-efficient children’s savings account that allows you to contribute on the child’s behalf. You can open up an account for your child or grandchild at any point until they turn 16, and at that point, they can manage it on their own, but won’t be able to withdraw anything until they turn 18. Anyone can contribute to a Junior ISA, but the maximum allowed per year is £9,000 (as of the 2021/22 tax year.)
Keep in mind that you need to consider annual allowance thresholds. Any gains made won’t incur Capital Gains Tax, nor will they be considered part of the parents’ or grandparents’ estate for Inheritance Tax purposes. Your child can gain access to the money when they turn 18 and then it’s up to them how they spend it, as long as it’s in their name.
There are two types and an individual can have one or both types:
- Junior Cash ISAs – Essentially the same as a bank or building society savings account, with one exception: there’s no need to pay tax on the interest earned from their savings.
- Stocks & Shares ISAs – Your savings are put into investments like shares and bonds and any profits earned are tax-efficient.
Lifetime ISA (LISA)
For adult children (from 18 to 40 years old) a Lifetime ISA (LISA) could help them save for their first home or even just for later on in life. The first payment must be made before they are 40, and contributions max out at £4,000 a year until they’re 50. Contributions count toward their overall ISA annual allowance, but they get a 25% bonus from the government, up to a maximum of £1,000 per year. Even though contributions can’t be made once they’re 50, if the account stays open, the money will continue to earn interest or investment returns.
Investment account
If tax is your primary concern, an investments account might be best. This will allow contributors to set up a designated account for a child or grandchild and invest a capital sum in it. A bare trust is created when the child/grandchild’s initials are put in the designation box when the account is set up, so as a result, HMRC considers the income and gains from the investment to be the minor’s, so there are no tax implications for parents or grandparents. When they come of age at 18, the money is legally theirs and they can spend it however they like.
Professional advice
While these options are certainly a great place to start, there are many ways to help give your family a financial head start. What the best approach is will depend upon your own individual circumstances. If you’re not sure which options are right for you, get in touch with us to learn more.
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