If you paid £4,000 into a Junior ISA each year from your child’s birth, they would have a fund of £123,000 at the age of 18 assuming a 6% pa growth rate. This could potentially provide a fund for school fees, university costs and a deposit for a first home. If you also did stakeholder pension contributions each year as blogged previously (£2,880 net pa) for your child from birth until 18,
you could have paid for their education, the deposit on their first home and provided a healthy retirement fund of c£1.2 million at the age of 60. All for £123,840!
You can invest £4,000 into an ISA for a child each tax year and as with adult ISAs. If this allowance is not used by 5 April then it will be lost. This can be a great way of saving (tax free) for university fees or a deposit for a first house alongside Inheritance Tax planning. This would be especially appropriate if you have already used up your own ISA allowance.
Children born between 2002 and 2011 may have Child Trust Funds (CTF) which were replaced by Junior ISAs in 2011. These are similar tax free products to the Junior ISA but as they are no longer available, there is limited investment choices for existing contracts and often relatively high charges. From April 2015 these can be moved to Junior ISAs with a wider choice of investments and possibly lower charges.
This is only a case study and does not constitute advice. Anyone considering any form of financial planning should seek independent financial advice.
First Wealth LLP is an appointed representative of Best Practice which is authorised and regulated by the Financial Conduct Authority (FCA). You should note that the FCA does not regulate tax advice.