There are available some highly tax efficient strategies for children which together can form a very effective plan for securing the child's financial future and encouraging them to save.
The financial future of children and grandchildren of doctors in Bristol is often a key issue we come across. This is especially the case with regard to providing for the cost of education, higher education and property purchase.
So what investment opportunities are there for the children?
NISAs are only available to individuals aged 18 or over (16 or over for cash NISAs) which means they are not available to children. Of course, there is nothing to stop any particular individual effecting an ISA with a view to using the proceeds for a particular purpose, namely a child's benefit.
- Junior ISAs
These were made available from 1st November 2011, for any child under 18 years of age (who does not already hold a Child Trust Fund see below). Junior ISAs permit up to £4,000 for 2014/15 per child to be invested in total (in a cash account and/or a stocks and shares account) by any one or more persons e.g parents/grandparents for tax free accumulation of income and capital until age 18 when the Junior ISA automatically converts into an ordinary ISA.
It is possible for doctors to provide funds to contribute to a registered pension plan for a child. This is a highly tax efficient strategy. In simple terms a contribution of £2,880 will be grossed up by tax relief to make it a £3,600 contribution to the child's pension. It is possible that continued contributions of this kind from birth to age 65 with reasonable growth assumptions (tax free) could create a 'pension pot' in excess of £1m. The obvious disadvantage of this strategy is that the funds will not be available for the child until aged 55.
- National Savings Children's Bonus Bond
The bond is issued for a particular child but controlled by a nominated parent or guardian until the child reaches 16, although the bond only matures when the child attains 21. The maximum per issue is £3,000 and interest and bonuses are tax free.
- Unit Trusts, Investment trusts
These investments are usually made by the parent or guardian on behalf of the child, usually using a designated account. Legally creating a bare trust for the absolute benefit of the child. More complex discretionary trusts can be set up as an alternative.
- Friendly Society Tax Free Savings Plans
UP to £25 per month (or £270 per year) can be paid to a friendly society plan on behalf of a child.
- Child Trust Funds
Parents of eligible children (broadly those born between September 2002 and January 2011) received vouchers for investment and parents /guardians can still top-up their CTFs in a tax-free environment until the child is aged 18. Child Trust Funds are being phased out, although the option to top-up remains. Please contact us to discuss any legacy Child Trust Funds you hold on behalf of your children to discuss the best way forward.
To discuss whether any of these investment opportunities could be right for you or your family please get in touch on firstname.lastname@example.org or 0117 966 5699.