Securing your child’s financial future is a top priority for many parents and guardians setting their financial goals for the year ahead. That being said, it’s also a process that can be fairly complex and requires much consideration.
Utilizing tax-efficient investments can significantly enhance the growth of your child’s wealth, and is a beneficial strategy to include in your approach. On top of this, you also have the option to seek financial advice and build a future plan.
If you’re looking for a child investment account, two prominent options in the UK are Junior Individual Savings Accounts (Junior ISAs) and Junior General Investment Accounts (Junior GIAs).
Understanding these tools, along with effective financial planning and seeking professional advice, can help you make informed decisions. Read on to find out more.
Junior ISAs
A Junior ISA is a tax-efficient savings account designed to help you build wealth for your children under the age of 18.
There are two types of Junior ISAs – cash Junior ISAs and stocks and shares Junior ISAs. The annual contribution limit (as of the 2024/25 tax year) is £9,000, but all of the savings and returns are free from income tax and capital gains tax.
Only a parent or legal guardian can open a Junior ISA on behalf of a child, but once opened, anyone can contribute savings to the account, up to the annual limit.
The funds in a Junior ISA cannot be accessed until the child turns 18, at which point the account converts into a regular adult ISA. However, the child can manage the account themselves from the age of 16.
Junior GIAs
A Junior GIA is another account you can invest in to grow your child’s wealth. This account is established through a ‘bare trust’ and managed by trustees (typically parents or grandparents) for the benefit of a child.
Unlike Junior ISAs, the savings in the account are subject to tax charges, although there is no annual contribution limit, offering greater flexibility for those wishing to invest more substantial sums. Also, funds in a Junior GIA can be accessed by the trustees at any time for the child’s benefit, whereas Junior ISAs are only accessed once the child turns 18.
Even though the returns within a Junior GIA are taxable, it’s possible to utilize the child’s annual tax allowances for both income and capital gains to maximize tax-efficient savings.
Seeking Financial Advice
No matter what type of tax-efficient accounts you choose to invest in to grow your child’s wealth, we highly recommend consulting a financial advisor.
Navigating the complexities of tax-efficient investments and trusts can be challenging, and your advisor can provide personalized guidance that’s unique to your family’s circumstances. They will assist in developing a comprehensive strategy that aligns with your financial goals and ensures compliance with current tax regulations.
They can also help in setting up trusts, selecting the most suitable investment portfolios, and making informed decisions about gifting and estate planning for your child’s future.
Financial Planning
Effective financial planning can also be essential for growing your child’s wealth tax efficiently. This involves assessing your financial situation, setting clear objectives, and selecting appropriate investment vehicles to achieve your future targets.
When investing on behalf of a child, be sure to consider factors in your plan such as the investment horizon, your risk tolerance, and the child’s future needs including higher education, purchasing their first home, and more.
Leveraging tax-efficient accounts like Junior ISAs and Junior GIAs, coupled with diligent financial planning and professional advice, can significantly improve your chances of success in securing your child’s financial future.
Contact a modern wealth manager today to learn more about how you can begin your approach.
Please note, the value of your investments can go down as well as up.
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