Wealth Management news

Raising children is expensive, there’s no escaping the fact. Per child, parents should expect to pay, on average, £12,000 per year. That’s without additional expenses like university, buying a first car, and saving for a first house, all of which are increasing in cost each year.

Perhaps because of these rising costs, more than two-thirds of people expect to provide financial support to their family at some point – a daunting prospect for many. The good news is that building a secure nest egg for your child doesn’t need to break the bank.

Junior ISA (JISA)

As with any ISA, this savings option is a tax-efficient one for parents who are keen to start saving early for their children. Any growth is completely tax-free. Neither you or your child will pay any Capital Gains Tax or Income Tax on the account’s growth.

JISAs are also a brilliant family option as anyone can pay into the savings account. Legal parents and guardians will need to be the ones to open an account. However, parents, grandparents, family members, and friends can all contribute towards your child’s future.

Two types of JISAs exist, a Junior Cash ISA and Junior Stocks and Shares ISA. For the 2023/24 tax year, you can pay up to £9,000 into the account.

The JISA locks away any money until the child reaches 18. From then, they can decide how they manage this fund. They could change it into an adult ISA or maybe they’ll choose to take the lump sum out for their first car.

Children’s pension fund

Your baby is brand new to the world, so thinking about its retirement may feel alien. However, it’s one of the most helpful things you could do as a new parent.

We are all living longer, so we will need more money in our pension funds in order to thrive when work stops. And to be able to do this, having a good lump sum available in your pension pot is crucial.

Today, financial experts suggest that earning around £40,000 per year from pensionable age is the key to a comfortable retirement. For someone retiring at 67 and living until the average age of 80, you’ll need a pension pot of around £1million.

The best way to try and reach that target? Start saving as soon as possible.

You don’t need to save huge amounts of money for your child, just what you can. The annual limit for a child’s pension is £2,880 a year, and the 20% pension tax relief bumps this up to £3,600.

The longer your child’s pension has to grow, the more it will benefit from compound interest. 

Like JISAs, only a parent or legal guardian can open a child’s pension fund, but anyone can contribute. There is an additional benefit of a child’s pension, however. Any savings you put in as a parent reduces the total value of your assets. This in turn will reduce your Inheritance Tax (IHT) liability.

Regardless of the path you choose, discussing money openly with your child/children is crucial. Make sure you have frequent conversations with them about saving money, discussing the reasons behind saving and ways they can support their own financial future.

Speak to an adviser today

Whatever you do, don’t feel like you need to think about your child’s financial future alone. Our specialist Wealth Management financial advisers are on hand to work through your family finances with you and find the best option. Contact us today.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested. An investment placed into funds (equities) would not have the security of capital associated with a deposit account with a bank or building society. The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances. Please note that St. James’s Place does not offer Cash ISAs.