Saving for the children – where to put the savings?

September 9, 2019

Enable’s IFAs in Bishop’s Stortford know that deciding to save for your child is the easy bit. The hard part is working out the best place to put those savings. There are of course several options depending on your broader financial circumstances and how much you trust your child.

saving for children

The first thing to be clear about is that children are viewed the same as adults when it comes to HMRC. They pay income tax, capital gains tax and dividend tax just the same as an adult. But they also benefit from tax relief including the savings allowance, personal allowance and pension the same as an adult would too.

One of the most obvious ways to save for the children is with a junior ISA. It works much like an adult ISA but unlike an adult ISA, there is no easy-access option. Money paid into a Junior ISA cannot be accessed until the child turns 18. Up to £4,360 can be deposited into a JISA this tax year with anyone able to contribute. When a JISA matures it is automatically transferred into a cash ISA meaning the money within it maintains its tax-free status until it is withdrawn, so will remain tax-free even when your child starts earning and paying tax.

Another option you may not have considered is putting money into a pension – a SIPP for your child. Even though your child isn’t earning any money they still benefit from tax relief on money paid into a pension. So, whatever you pay in the government will automatically add 20%.

The big attraction of a SIPP is the time the money will have to grow. But our child won’t be able to access the money until they are 55 (under current rules) which means the money has over 50 years to grow. By putting money into a SIPP you’ll get a serious head start on your child’s pension planning. But, your child won’t be able to access that cash to help them pay for university or buy a home.

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