If anything, other than the myriad of struggles Covid-19 has brought upon society, the pandemic has awoken the painful ignorance in a vast number of young people towards saving not only for their future, but also for immediate emergencies
For the millennial generation, the ‘Bank of Mum and Dad’ has acted as a last chance federal reserve to ensure they can continue to live through their blind profligacy. In the wake of the Covid-19 pandemic, the ‘Bank’ has now extended its services, providing bed and board for many.
I may hyperbolise slightly, but Covid-19 has highlighted the need to start saving early for our children to ensure they are in a more secure financial position come the need to pay for studies, afford a first home or be prepared for immediate financial emergencies.
When it comes to our children saving for themselves, certain behaviours affect their motivation, not least the rising cost of living having made it difficult to put money aside. Young people’s spending and saving priorities also differ from past generations, as they feel more pressured to take on debt and spend more.
Parents can still ingrain good habits from a very young age and are the main source of financial advice for young adults.
Junior ISAs
With regards to providing your children with a greater financial foundation, Child Trust Funds (a wrapper offered between 2002-11 allowing for tax-free savings accounts for under 18’s) have been replaced by Junior ISAs (JISA), which carry similar traits with an increased and generous annual allowance of £9,000 for this tax year. Parents are the only ones who can open a junior ISA for a child, but family members like grandparents can pay money into the account.
Contributing to a JISA can be used as a tactic to reduce your future inheritance tax liability. Regular contributions (i.e. monthly) to a JISA for a child or grandchild can be exempt from inheritance tax, if they are gifts out of income and do not affect your lifestyle.
~Novel Serialisation: Heavens Fire~
Grandparent Bare Trusts
Bare Trusts are often used by grandparents who wish to provide for a grandchild (or grandchildren) who is/are too young to accept and invest a gift.
With regards to the tax treatment of the trust, the beneficiary (i.e. the grandchild) is treated as the beneficial owner of the property held – not the trustees. As such, any capital gains arising within the trust are those of the beneficiary who is entitled to the current annual CGT exemption of £12,300. Likewise, as the transferor of property is not a parent but is a grandparent, for income tax purposes the income is that of the grandchildren, who can use their own personal allowance of £12,500.
Premium Bonds
As a secure, 100% safe HM Treasury backed savings investment, Premium Bonds are often considered an attractive investment for your children. They can be purchased on behalf of children under the age of 16 and bought as gifts, as the purchaser nominates one of the child’s parents to look after the bonds until the child turns 16 years old. Any prizes won and any payment for cashed-in bonds will be sent to the nominated parent, or the prizes will be paid to the child’s premium bonds account if elected.
A variety of investment vehicles exist to help parents save on behalf of their children to provide them with the best financial foundation in adulthood. Nevertheless, it is of equal importance to educate your children on saving, or you can expect your children to be a more frequent customer of the ‘Bank of Mum and Dad’ for years to come!
By Anthony McManus, Wealth Planning Assistant, JM Finn
The information provided in this article is of a general nature. It is not a substitute for specific advice with regard to your own circumstances – JM Finn
