It costs £229,251 to raise a child to 211. Stagnant wage growth and low interest rates are among the factors that can squeeze parents trying to make ends meet, let alone think about funding future costs such as university or a deposit for a house.

In situations where expenses are rising and returns from savings are falling, the idea of building a nest egg for your children might seem far-fetched, but saving for your kids need not break the bank and could make a huge difference. Here we’ll be covering some of the options available when it comes to investing for your children’s future.

In many cases, time is on your side. Buying a first home or paying for further education or training can be made far more affordable by starting early. The principle is very simple: the longer the investment has to mature, the greater the benefit will be from the year-on-year compound growth of reinvested returns: investing £200 a month for five years can grow to over £13,000. This assumes an annual growth rate of 5% net of charges. This figure is an example only and is not guaranteed – it is not a minimum or maximum amount. What you will get back depends on how your investment grows and on the tax treatment of the investment. You could get back more or less than this.

There are a number of schemes to save for children. The tax-friendly Junior Individual Savings Account (Junior ISA) is a very attractive option. Any returns are free from Income Tax and Capital Gains Tax. Savers can typically make regular or one-off payments up to the annual limit of £9,000 (for tax year 2020/21). Money held in a Junior ISA is locked in until the child reaches 18, after which it can be converted into an adult ISA and continue to enjoy the same tax advantages.

Less well-known is that children can have a pension fund as soon as they are born. Setting one up can bring significant tax advantages since, as you save, the government adds a generous tax relief.

Contributions up to the maximum of £2,880 a year are automatically grossed up by the government to take account of tax at 20%, giving a maximum annual investment of £3,600. Even a few years of contributions can build a substantial pot.

In common with Junior ISAs, anyone can pay into the pension – parents, grandparents, godparents, friends or other family members. (However, only parents and legal guardians can actually set one up.) Saving this way may also help mitigate an Inheritance Tax (IHT) liability. Payments from grandparents, for example, may be covered by the annual £3,000 IHT gifting allowance, or the exemption for payments made out of income.

Under current legislation, savers can gain access to their pension fund at 55 – although this will change to 57 in 2028 – and from then on it will be set at 10 years below the State Pension age. But the benefits can be felt long before that. Saving into a pension for your children allows them to focus on other financial goals, such as starting a family and buying their first home.

Whether you already have kids or are considering it in the near future, it’s important to understand what you can do to set them up for the future. If you’re in a position to, making the most of the schemes available could prove invaluable.

 

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

It costs £229,251 to raise a child to 211. Stagnant wage growth and low interest rates are among the factors that can squeeze parents trying to make ends meet, let alone think about funding future costs such as university or a deposit for a house.

In situations where expenses are rising and returns from savings are falling, the idea of building a nest egg for your children might seem far-fetched, but saving for your kids need not break the bank and could make a huge difference. Here we’ll be covering some of the options available when it comes to investing for your children’s future.

In many cases, time is on your side. Buying a first home or paying for further education or training can be made far more affordable by starting early. The principle is very simple: the longer the investment has to mature, the greater the benefit will be from the year-on-year compound growth of reinvested returns: investing £200 a month for five years can grow to over £13,000. This assumes an annual growth rate of 5% net of charges. This figure is an example only and is not guaranteed – it is not a minimum or maximum amount. What you will get back depends on how your investment grows and on the tax treatment of the investment. You could get back more or less than this.

There are a number of schemes to save for children. The tax-friendly Junior Individual Savings Account (Junior ISA) is a very attractive option. Any returns are free from Income Tax and Capital Gains Tax. Savers can typically make regular or one-off payments up to the annual limit of £9,000 (for tax year 2020/21). Money held in a Junior ISA is locked in until the child reaches 18, after which it can be converted into an adult ISA and continue to enjoy the same tax advantages.

Less well-known is that children can have a pension fund as soon as they are born. Setting one up can bring significant tax advantages since, as you save, the government adds a generous tax relief.

Contributions up to the maximum of £2,880 a year are automatically grossed up by the government to take account of tax at 20%, giving a maximum annual investment of £3,600. Even a few years of contributions can build a substantial pot.

In common with Junior ISAs, anyone can pay into the pension – parents, grandparents, godparents, friends or other family members. (However, only parents and legal guardians can actually set one up.) Saving this way may also help mitigate an Inheritance Tax (IHT) liability. Payments from grandparents, for example, may be covered by the annual £3,000 IHT gifting allowance, or the exemption for payments made out of income.

Under current legislation, savers can gain access to their pension fund at 55 – although this will change to 57 in 2028 – and from then on it will be set at 10 years below the State Pension age. But the benefits can be felt long before that. Saving into a pension for your children allows them to focus on other financial goals, such as starting a family and buying their first home.

Whether you already have kids or are considering it in the near future, it’s important to understand what you can do to set them up for the future. If you’re in a position to, making the most of the schemes available could prove invaluable.

 

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

It costs £229,251 to raise a child to 211. Stagnant wage growth and low interest rates are among the factors that can squeeze parents trying to make ends meet, let alone think about funding future costs such as university or a deposit for a house.

In situations where expenses are rising and returns from savings are falling, the idea of building a nest egg for your children might seem far-fetched, but saving for your kids need not break the bank and could make a huge difference. Here we’ll be covering some of the options available when it comes to investing for your children’s future.

In many cases, time is on your side. Buying a first home or paying for further education or training can be made far more affordable by starting early. The principle is very simple: the longer the investment has to mature, the greater the benefit will be from the year-on-year compound growth of reinvested returns: investing £200 a month for five years can grow to over £13,000. This assumes an annual growth rate of 5% net of charges. This figure is an example only and is not guaranteed – it is not a minimum or maximum amount. What you will get back depends on how your investment grows and on the tax treatment of the investment. You could get back more or less than this.

There are a number of schemes to save for children. The tax-friendly Junior Individual Savings Account (Junior ISA) is a very attractive option. Any returns are free from Income Tax and Capital Gains Tax. Savers can typically make regular or one-off payments up to the annual limit of £9,000 (for tax year 2020/21). Money held in a Junior ISA is locked in until the child reaches 18, after which it can be converted into an adult ISA and continue to enjoy the same tax advantages.

Less well-known is that children can have a pension fund as soon as they are born. Setting one up can bring significant tax advantages since, as you save, the government adds a generous tax relief.

Contributions up to the maximum of £2,880 a year are automatically grossed up by the government to take account of tax at 20%, giving a maximum annual investment of £3,600. Even a few years of contributions can build a substantial pot.

In common with Junior ISAs, anyone can pay into the pension – parents, grandparents, godparents, friends or other family members. (However, only parents and legal guardians can actually set one up.) Saving this way may also help mitigate an Inheritance Tax (IHT) liability. Payments from grandparents, for example, may be covered by the annual £3,000 IHT gifting allowance, or the exemption for payments made out of income.

Under current legislation, savers can gain access to their pension fund at 55 – although this will change to 57 in 2028 – and from then on it will be set at 10 years below the State Pension age. But the benefits can be felt long before that. Saving into a pension for your children allows them to focus on other financial goals, such as starting a family and buying their first home.

Whether you already have kids or are considering it in the near future, it’s important to understand what you can do to set them up for the future. If you’re in a position to, making the most of the schemes available could prove invaluable.

 

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

References

1 Centre for Economic and Business Research report commissioned by LV=, September 2019

References

1 Centre for Economic and Business Research report commissioned by LV=, September 2019

References

1 Centre for Economic and Business Research report commissioned by LV=, September 2019

Getting Started

Tell us a bit about yourself and the types of articles you’d be most interested in seeing. And we’ll serve up useful, personalised content that meets your specific needs. Easy.



Find out more about Choices