A Guide To Savings and Investments For Children

A parent has to think about a lot when it comes to their children, this includes their financial future. Many children will grow up and need a car, university funding or even a deposit on a new house and finding the money can be difficult. This is why a lot of people are investing money for their children.

Children and Tax

Every child has their own personal tax allowance just like an adult, which means the child will not have to pay tax on the first £5,035 of income and the first £8,800 of capital gains. However, you should be aware that only the first £100 of interest earned or income received each year technically belongs to the child. Anything above this amount is taxable against parental earnings. This rule is simply designed to stop people avoiding tax by putting all of their money into accounts for their children.

The Child Trust Fund

A Child Trust Fund is a tax-free savings investment method available to children born on or after 1 September 2002. Any child is eligible for this if Child Benefit has been awarded to them and they are living in the UK. The government will place £250 into the fund upon opening and another £250 on the child’s seventh birthday. Anyone else may contribute up to a total of £1,200 a year into the account. It is impossible to access to the money in the Child Trust Fund until the child turns 18, and the account (as well as the funds contained in it) are the child’s property. When the child finally turns 18 they will be able to withdraw the money.

Children’s Bonus Bonds

National Savings offer Children’s Bonus Bonds, which are also tax-free investments. The limit is £3,000 on investment in each issue of bonds (a bond being a certificate of debt whereby the issuer must pay you a fixed amount per year). It is held in the name of the child under the control of a parent or guardian until the child is 16 and the bonds can be opened (and the money received).

Friendly Society Bonds

Friendly Society Bonds are another way to invest for your children, and are also tax-free. However, they have low maximum investment levels, which means you cannot put as much into them as the other options. You may pay in as little as £100 a year up to a maximum of £270 a year in lump sums. Each child has a tax-free Friendly Society allowance of £270 a year. Most Friendly Societies offer 10-year investments or longer to coincide with a special birthday such as 18th or 21st.