Supporting Your Child’s Financial Future – Child ISAs & Trust Funds (2022/2023 Update)
We all want the best for our children and there is no harm in planning early on to support your child’s future economic health.
As we enter increasingly uncertain economic times, having the right preparation in place is an important consideration in the financial planning of your family. In this blog piece we will explore the advantages of both the Child ISA and Trust Fund.
Introducing Child ISAs
Some time ago, the UK government began promoting its program to encourage families to save for their children’s future.
The name of the program is the Junior ISA – Individual Savings Account. Like an ordinary ISA, it starts off like an ordinary savings account – you put the money in and get a guaranteed interest rate. However, the savings in ISA are completely secure and tax-free. Finally, as soon as your child is 18, they get the cash out to help them with university, training or anything they wish.
However, as we know only to well, this only really works if the interest rate paid on your savings beats the current rates of inflation – in the current climate this cannot be guaranteed.
To overcome this issue, there is an alternative way of saving under the Junior ISA scheme – You can opt to invest in securities, with returns dependent on the performance of the underlying bonds and shares.
In the 2022 to 2023 tax year, the savings limit for Junior ISAs is
£9,000. You can split that sum between the two ways of saving, bonds and shares, in whichever percentage you so wish.
There are 2 types of Junior ISA:
- A cash Junior ISA, for example you will not pay tax on interest on the cash you save
- Stocks and shares Junior ISA, for example your cash is invested and you will not pay tax on any capital growth or dividends you receive
Allowing your child to make their own binary investment decisions, with the right guidance could also be a valuable exercise which will teach them the basics of banking, investing and most importantly the value of money.
If your child however is a little too young to be wholly trusted with deciding where their future money should go, it is still a very good and helpful example for them to see you continuously setting aside money.
Another advantage of an ISA is that the money is completely safe under the scheme. You should also always ensure that you make sure that your ISA sits with an authorised UK provider and that you have less than £85,000 with the financial institution in question. When your child turns 18, their Junior ISA will automatically become an adult ISA, meaning that none of the tax-free benefits are lost – a double bonus!
Child Trust Funds
There is a chance that your child already has a Child Trust Fund – the government automatically created them for anyone with date of birth between 1stSeptember 2002 and 2nd January 2011.
In the case that your child already has one in place, your financial institution can convert this Trust Fund into a Junior ISA.
As we have explored, this is something worth considering since the interest rates on CTFs tend to be lower than those on ISAs. If you have concerns about which savings scheme best suits yours and your child’s needs, please do get in touch with one of our advisers today by booking a complimentary consultation!
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Please Note: All information, references and dates included in this article were accurate at the time of publishing.
