How Can I Invest For My Child’s Future?
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham.
Children are a precious gift, yet they come with their costs. Weddings continue to climb up in price, and houses and university costs are not getting any cheaper. Here at Castlegate, our financial advisers regularly speak with clients here in Grantham and the wider Midlands who are concerned about how to provide for their child’s long-term future. The good news is that there is much you can do now to plan ahead. The earlier you start the better, as even small regular savings from their early years can add up to a big difference in the long term.
Please use this guide to inform your thinking about your own parental financial planning. If you would like to discuss any of these matters with us or talk about your own financial plan, please get in touch to arrange a no-obligation financial consultation, at our expense:
It might sound strange to start this subject on the topic of financial protection. However, it’s without a wealth preservation strategy in place, much of the savings you put aside for your child could be wiped out by a future tragic accident or illness, leaving you unable to work. Here at Castlegate, for instance, we often speak with clients in Grantham about their options for critical illness cover, life insurance and income protection. One or more of these policies could make all the difference for ensuring that the savings you intend for your child eventually get there.
#2 Will & trusts
To take the previous point to its next logical step, it’s also important to consider getting a legally airtight will in place. Remember, without a will your estate will likely be divided up according to the UK’s intestacy rules, which might not distribute your assets in the way you would like for your surviving partner or children.
Also, it’s a good idea to speak with a financial adviser about your inheritance tax liability. After all, even if you have a will, in 2019-20 your estate is likely to face inheritance tax of 40% on its value over £325,000 – unless you engage in some careful financial planning. One area which you might look at with your financial adviser is the use of trusts. These can be especially valuable for clients in Grantham who are looking to mitigate their IHT exposure, whilst also controlling how (and when) their children would receive parts of their estate after they die. For instance, you might consider leveraging a trust if you want a specific set of capital to be put towards your child’s deposit on a first home, or towards their wedding day.
#3 Junior ISA
Turning now to savings (which is probably where you expected we would start!), a great option to think about is the Junior ISA. In 2019-20, this allows you to save up to £4,368 in your child’s account completely free of tax. The main criteria are that your family lives in the UK (unless you’re a Crown Servant), and your child must be under the age of 18.
Junior ISAs come in two main forms – cash ISAs or Stocks and Shares ISAs. There are pros and cons to each type, and it’s a good idea to talk through the options with your financial adviser to make sure you find the right fit for your financial needs and objectives. At the basic level, the former acts very much like a regular savings account, whilst the latter puts the money towards particular investments which may go up or down over time. In both cases, however, the money cannot be withdrawn by either you or your child until they reach age 18.
#4 Junior Self-Invested Personal Pension (SIPP)
If you’re thinking very far ahead (which is only ever a good thing), then you might be wondering how you can give your child a leg-up in their eventual retirement. Your child is likely to face very different financial circumstances from your generation when they reach their 60s and 70s, so starting a pension fund on their behalf now could hugely impact their quality of life in old age.
One option to think about on this matter is the Junior SIPP (Self-Invested Personal Pension). Here, you can contribute up to £2,880 a year in 2019-20 and the government will also top-up your contributions via 25% tax relief, which could bring the total up to £3,600. Over fifty or more years, even a small monthly contribution of £50 per month could grow to a significant figure for your child’s retirement – possibly well over £100,000 (assuming a 5% annual rate of investment growth). Bear in mind that your child’s investments in their SIPP might rise or fall over time, however, and the tax benefits of today might change over future years with government policy.
It’s noble and admirable to desire a good financial future for your child. There are many different areas of tax planning, investing and wealth management to consider, however, which must be finely-tuned with a careful financial planning strategy to reach your goals.
If you are interested in discussing your own financial plan or retirement strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense: