Mellow Mummy: Savings and Investments For Children – Q&A : Taking life as it comes...

Wednesday, 29 February 2012

Savings and Investments For Children – Q&A

This is a sponsored post but that doesn't stop it being fun to read and a topic about which Mellow Mummy feels very passionate, from a company I personally invest with.

Teaching your children the importance of dealing with their finances sensibly and maturely can be a difficult task but it’s never too early to begin a lifetime of good financial practice. As you and your family grow, you’ll face both expected and unexpected expenses - from school fees and holidays costs, to travel expenses and medical bills.

Q: Are savings or investment plans worth it?
Creating a savings or investment plan for your children means the possibility of a financial head start at an age when they’re more likely to appreciate and need it. If you’re unsure about how to proceed, it’s worth asking yourself why you’re looking, before selecting a suitable plan.

Q: What could my plan help with?
School fees are a big part of some children’s education. If you’re thinking about opting for private education for your children, you can expect to face typical fees of around £3,500 a term - which can be a serious burden. If you’re looking further ahead, university fees also present significant costs - from September 2012, English universities will be able to charge up to £9,000 per year in tuition fees. Universities in Scotland, Wales and Northern Ireland will also be able to raise their fees from 2012, but their home students will not be affected. On top of that, students will need to manage the cost of living and other expenses.

On another note, savings and investment plans can be very useful for helping protect an inheritance. Parents or grandparents who want to reduce the sting of inheritance tax may want to invest money for a beneficiary now, without losing any of it to the tax man. Tax free means, under current law, free of income and capital gains tax except for tax on dividends from UK shares. Remember, tax treatment depends on individual circumstances and tax law may change in the future.

Q: What kinds of child savings and investment products are available?
There are plenty of different ways to save or invest money for your child. Many organisations offer savings and investment plans specifically for children. With affordable monthly payments, these accounts may generate interest, or invest in the stock market and deliver returns for your child protected from income and capital gains tax (other than that deducted from UK share dividends). Like any tax break it depends on individual circumstances and can change in the future. You must remember that with any stockmarket related investments, your investments may fall as well as rise and your original investment is not guaranteed.

You may have heard of the Junior ISA (‘JISA’), which offers a way of saving and investing money on behalf of your child, within a tax free wrapper. Any child under 18, born on or after 3rd January, 2011 may hold a ‘Cash’ JISA, or a ‘Stocks and Shares’ JISA (or both). As with all stock market investments you might not get back as much as you have paid in.

Like an adult ISA, your child’s money is protected from income and capital gains tax – tax is deducted from UK share dividends – meaning the returns the account generates are protected from tax up to a limit of £3,600 each tax year. Tax treatment depends on individual circumstances and tax law may change in future, Once set up, anyone can contribute to the JISA, which allows grandparents and other family members who want to contribute to a child’s financial future to easily get involved.

Q: When will my child benefit from a savings or investment plan?
The JISA and various savings and investment plans should be seen as long term strategies. In the case of the JISA the money within it won’t be accessible until your child turns 18. At that point, they may let the JISA turn into a full adult ISA, or withdraw the money and spend it however they want. Make yourself familiar with the details of individual child savings and investment plans. In many cases, if you access your money before a certain amount of time, usually 10 years, you’ll lose the tax incentives the plan offers. Be aware, if you’re investing money in a stock market investment, the value of stocks can fall and well as rise and there’s no guarantee the child will get anything back. Tax treatment on all these plans depends on individual circumstances and the law change in the future.

Author: Jill Mackay, Scottish Friendly

No advice has been provided by Scottish Friendly in relation to these plans. If you are in any doubt as to whether a plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting Advisers may charge for providing such advice and should confirm any cost beforehand.
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