Starting to save early for a child or grandchild’s future can give them a welcome and much-needed financial leg up.
Rocketing house prices and rising rental costs means the hope of owning a home – a hope that previous generations took for granted – can seem like an impossible dream. Fortunately, though, with a little help from parents and grandparents that doesn’t have to be the case.
There are four key things to think about:
- A Junior ISA allows you to save up to £4,368 in the 2019-20 tax year for a child in a tax-efficient way.
- A bare trust is particularly useful for grandparents who want to keep tax on savings to a minimum – and retain some control.
- A junior pension can give a child a substantial head start in saving for retirement – one less thing to worry about when they become an adult.
- Gifting wealth now could also cut a future inheritance tax bill.
Each option can serve a purpose.
Case study: finishing university debt-free
Lucy and Robert are celebrating the birth of their first child Aaron.
Having heard that many students leave university with huge debts, Lucy and Robert have decided to set up a savings plan for Aaron’s university education.
Three years of tuition fees and living costs, starting in 18 years’ time, could amount to £95,444.
This assumes that both tuition fees and student living costs rise in line with general consumer inflation from now.*
Investing £364 a month into Junior ISA (corresponding to the current annual JISA allowance of £4,368 a year) from now until Aaron’s 18th birthday could easily cover the estimated total cost of £95,444.
At 18, Aaron’s university savings pot would be worth £127,000, based on growth of 5% per annum net of charges. Even at more modest growth of 3% per annum net of charges the savings pot could be worth £104,000 – again sufficient to cover three years of university.
To find out more about how Brewin Dolphin can help you answer these questions, request a callback today.
* Source: Brewin Dolphin. Cost assumes 2.1% inflation of current university tuition fees (£9,250) and living costs (£12,160
The value of investments can fall and you may get back less than you invested. or if income is mentioned The value of investments and any income from them can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
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The information contained in this publication is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness