Saving for your Children’s future – what to do with the Christmas money?

December 7, 2012

Well it’s that time of year again when everything is all about the card writing, gift giving, turkey cooking and arguing over the TV scheduling post Christmas lunch!

I love Christmas and am particularly enjoying seeing it again through a child’s eyes now my little one is getting older and can appreciate it more.

We’ve not quite reached the stage where she is writing a list for Santa but we have our own list of gifts we know she will enjoy and appreciate on Christmas morning.  Of course aside from the presents this time of year many children are in the fortunate position of being gifted money from parents, family and friends and this inevitably leads to making a decision on the best use of these funds.

Will it go to into a child’s deposit account for a purchase in the coming New Year, or be saved for the longer term through an existing Child Trust Fund or more recently introduced Junior ISA?

Savings accounts

Most banks and building societies offer special accounts aimed at children. Many will use marketing gimmicks to attract them but the key concern should be getting the best possible savings rate, so shop around, compare offers online and in branch and then you can make an informed decision.

You should be aware that interest is payable at parents’ income tax rate on any interest earned above £100 in these accounts.

National Savings

National Savings children’s bonus bonds are only available to those aged under 16 although they must be bought on their behalf by adults. They pay a fixed rate of interest and can be held until the child reaches 21. To get the best return, the Bonds must be held for five years to qualify for a bonus.

They are tax-free and so can be particularly good value for any young people who are taxpayers. They are sold in units of £25 and a child can have up to £3,000-worth of the current issue of bonds. Get the children’s bonus bond booklet NSA769 from post offices for further information.

Child Trust Funds

Child Trust Funds were stopped at the beginning of 2011 but when running the scheme meant all children born after 31 August 2002 received a voucher worth between £50 and £500 (depending on when they were born and how well-off their parents were) from the Government to open a child trust fund account. Although the vouchers are no longer issued there many under 9s who will have a Child Trust Fund in their name which may have been neglected since it was initially opened.

This is a fantastic method of saving for the future so if you started one some time back but it’s not been topped up for a while it could be a good idea to get some regular savings going in the New Year or make a lump sum commitment with some of the Christmas money coming your kids way this month.

The annual limit which can be invested into an existing Child Trust Fund is now £3,600 and given the tax advantages it makes sense to make use of this vehicle if you have one opened but haven’t looked at it for a while.

Junior ISA’s

These were introduced on 1st November 2011 and started in essence to replace the Child Trust Fund Scheme.

These ISA’s are available to eligible children under the age of 16 who did not qualify for the Child Trust Fund. Parents, family and friends can contribute up to £3,600 in the tax year (based on current limits) and this can be done on a regular or one off basis.  The money in the account can only be taken by the child once they reach 18.

There are many ISA’s out there and plenty of online independent comparison sites to help with the decision and we would of course be more than happy to provide some guidance if this is something you are thinking of.

Winston Churchill said “Saving is a very fine thing. Especially when your parents have done it for you”, so if you haven’t already started to put something aside for future years or you’re thinking about encouraging your children to take an interest in their own regular savings and want more advice please do not hesitate to get in touch.

We’ll be picking up on some useful ideas to teach children about money in our December Newsletter so watch out for it coming in if you are regular recipient. If you’re not already on the mailing list but want to hear more about this and other topics through 2013 then please follow the Newsletter link at the top of the page and sign up.

If I’m not blogging again before our Christmas break I’d like to take the opportunity to wish all our readers a very Merry Christmas and a prosperous 2013.

Claire Armstrong

 

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Multiple Income Streams

September 24, 2012

How do we get clients over the often held view that pensions are “rubbish”?

A by-product of the product lead sales approach, is to focus on the “thing” not the outcome – “I’ve ruthlessly and with malice aforethought, researched the market and have selected Split Pea & General as having the best pension product for you…”

Even writing this leaves me stone cold, imagine it from your client’s point of view.

We’re totally committed to cash flow modelling as the correct approach when visually demonstrating financial planning to clients here. The more we use the cash flow models with clients, the more obvious it becomes that once you demonstrate that a pension is just an income with a different name, all the scales fall away.

People get the picture pretty quickly when they can “see” what a pension can do for them and get the tax advantages too.

Rather than focus on the swamp that pension income options can be, we tend to talk about Multiple Income Streams that are required when you decide not to work anymore (not retire) and how to put these building blocks in place.

We have found that having the client’s focus more on how much they need by way of fund or income when they stop working, tends to work better.

We set out a program in which the clients use all the tax wrappers (Pension, ISA, OEICS,Bonds etc) in an appropriate time and manner for them and this ensures that the we are able to use the Multiple Income Streams to create the tax optimised replacement for income  in retirement (there, I’ve said it!)

We don’t dumb-down the detail but once we’ve established the high ground its an easier conversation. We also work hard in not overloading on tech talk or jargon when discussing the nuts and bolts.

A form of Plain English if you will and it’s always good to ask a client to briefly explain back to you what you’ve discussed and find that a good understanding have been established.

If not, I would always go back and cover the areas of difficulty again.

It’s never to patronise, but more for my peace-of-mind that I’ve been able to get the information required across to the clients in order they can make the correct decisions for them about the advice being offered.

We also use our cash flow software to demonstrate the way income will be delivered to them and the likely tax treatment.

It pulls together the concept of the Multiple Income Stream theory and the notion of a controlled replacement for income once you stop working.

You might even think pensions aren’t so bad after all.

None of this is new, earth-shattering or dangerous thinking, but then again providing sound financial advice doesn’t have to be complicated.

Roland Oliver

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Offshore bonds for university fee provision?

May 26, 2011

As my 16 year daughter gaily announced that she’s found another University near London that she might like to try, it did strike a chord that the financial burden for children goes way beyond standard school fees.

You could argue that the cost of children never diminishes or goes away completely, but that’s another argument for another day.

Whatever the eventual cost and in whichever location, having funds available to help ease the pain is the thing to do.

There are a number of ways to plan for further education fees; using the maximum ISA allowance each year, savings accounts, collectives and even using tax free cash from pension can all play a part.

I’d like to focus on how an Offshore Bond could be a vital addition to your further education fund armoury.

As I touched upon in a previous blog, the tax regime in the UK is punitive and using the tax free growth status of an Offshore Bond to provide fees by way of assignment to a non-UK taxpayer (like a Student) is worthy of consideration.

The Offshore Bond also has further advantages over other forms of saving in as much as there are no upper contribution limits (like an ISA or pension), access at anytime and a wide range of investment options which can include our Dimensional run passive portfolios.

A higher rate tax payer can take advantage of tax free growth offshore and potentially could provide annual University fee help to their children by then assigning policy segments to them. Providing the recipient is a non-taxpayer, there will be no tax to pay.

Care needs to be taken when accessing benefits from an Offshore Bond if you are a higher-rate taxpayer and I would discuss this in more detail in individual cases.

Add the ability to take tax deferred income for 20 years and a range of Trust options, then the Offshore Bond is a very handy addition when considering funding for further education fees.

This is a very brief introduction to the concept of Offshore Bonds and I would be happy to discuss this subject or any other of your financial planning needs at any time.

Roland Oliver

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