Investing for children – what are the options?

Share

As we grow older, our financial priorities change. It looks like this is especially the case for grandparents who are big ambassadors of investing in accounts like Child SIPPs and the Junior Stocks and Shares ISA.

Here is an overview of what you need to know about investing money in these accounts and how you can learn some lessons from the older generation.

What is a Child SIPP?

This is often referred to as a Junior SIPP. With SIPP standing for ‘self-invested personal pension’, it is essentially a pension savings account for children. This may sound a bit ridiculous to have at such a young age but it’s a really smart option.

These accounts work like this:

  • You can invest up to £2,880 per child per tax year;
  • 20% tax relief will apply, topping up the account to give you a potential total of £3,600;
  • Investments are then free from UK income and capital gains tax;
  • The other benefit is that gifts into a Child SIPP can fall outside your estate for inheritance tax (IHT) purposes;
  • Money in the account can only be withdrawn once the holder turns 55 (rising to 57 in 2028)

Even with just a small amount deposited, the fund would potentially grow to a high level by the time your child reaches retirement age. This is due to the power of compound interest over time.

How does a Junior Stocks and Shares ISA work?

These accounts work in a similar way to a normal stocks and shares ISA but with a few tweaks:

  • The maximum deposit amount is £9,000 per tax year;
  • Your child or grandchild cannot gain access to the funds until they turn 18.

The biggest issues to consider when considering this type of account are:

  • Locking the money away means they’re not very flexible;
  • Investment selection must be wise as some choices could lose value.

Why do grandparents favour the Child SIPP & Junior Stocks and Shares ISA?

According to research from Scottish Friendly, 47% of grandparents increased their investing contributions for their grandchildren over the past year. Child SIPPs were the most popular accounts and Junior Stocks and Shares ISAs were a close second. This makes sense because these accounts provide an excellent way for grandparents to pass on some of their wealth. Using these allowances is a secure and tax-efficient way to provide for your family and potentially create multi-generational wealth. The structure of these accounts prevents the holders from dipping into the money early. So grandparents can rest assured that this money saved away and invested and can only be used when the time is right and the recipients reach a mature enough age.

If you would like to discuss setting up savings or investment accounts for your family members, please contact us here.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.

Sources: Techlink and https://www.scottishfriendly.co.uk/news/2021-news-and-press-releases/nearly-half-47-grandparents-investing-their-grandkids-increased-contributions-over-past-year-pandemic-helped-boost-childrens-sav

Share

Other News

Tax year end planning checklist for individuals – 2021/22 tax year

A handy checklist of suggested planning considerations for individuals for the end of the tax year.

Property & Mortgage Outlook – January 2022

Average UK property prices hit a new record high at the end of 2021, making it the strongest calendar year for price growth since before the Global Financial Crisis (GFC) in 2008.

Financial Resolutions for 2022

If getting your finances in order is on your to-do list, here are some tips to help you get started.