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Saving for Children

Many LGBT households now include children and there are many reasons why you might want to save for them to provide funds for their future.

child savingsNot all LGBT households are 'dual income, no kids'. Plenty LGBT people have children, either from previous relationships or as part of the current relationships. There are many reasons why you might want to save for children: you may want to provide funds for their school fees or university education; you may be looking further ahead and saving for for a deposit for a property they might wish to buy.

Child Trust Funds

There is little the state currently provides specifically for children's savings. From 2005, Child Trust Funds were available until January 2011.  The government started these funds with a cash donation, normally £250 and friends and families could contribute to the CTF up to £1,200 per annum until the child's eighteenth birthday. Whilst this scheme is no longer open to new entrants, contributions to existing CTFs can continue.

Junior ISAs

To replace CTFs, but with no government contribution, Junior ISAs were introduced on1 November 2011. The maximum that can be saved each tax year is now £4,000. At age 18 the JISA converts to an adult ISA. Like adult ISAs, JISAs are available in both cash and stocks and shares types. Unlike adult ISAs, money cannot be withdrawn until age 18 unless a terminal illness claim is agreed or following closure of the account after the death of the child. A child can open their own account from age 16, otherwise a person with parental responsibility can do it. They are available to those who are under 18 and were born on or after 3 Jan 2011 (or do not have a CTF account ie children born before 2005) and are resident and ordinarily resident in the UK, or a UK Crown servant, married to or in a civil partnership with a Crown servant, or a Crown servant.

Each child ISA and CTF has a single registered contact, who will be the person with parental responsibility. From age 16 a child can register to be their own contact and this registration cannot normally be reversed.

One thing to note is that once a child reaches the age of 18, any funds they hold in a JISA are now theirs to do with what they wish. They may wish to spend it on saving for a property deposit, or they may blow it all on clothes. There is nothing a parent can do!

Banks and Building Societies

Banks and building societies are the most common safe home for savings, and for children, the savings can be paid gross instead of net of tax but completing an R85 form which indicates that the individual is a non-taxpayer. However, with inflation currently far outstripping interest rates, the real return on any savings will be negative and, therefore, you may question this as the home for longer term savings. If money is put into a bank or building society account for children and the source of the money has been a parent or step parent, it is important to remember that any interest over £100 will be taxed as parent's income.

National Savings and Investments

You might also want to look at National Savings and Investments. Childrens Bonus Bonds,  the Investment Account or Premium Bonds may be products to consider.

Equities

However, if you want longer term investments and you are looking for the potential of maintaining the real value of any funds invested, it would be appropriate to consider equity backed investments.

Pensions for children

One area that is seeing a growth in interest is investing in pensions for children and grandchildren. The money is locked away until the age of 55 (57 from year 2028),

This could be seen as a disadvantage but overcomes the problem associated with, for example, the CTF which could potentially become a "beer fund" on the child's 18th birthday! In reality you are providing a valuable kick start to the child's pension planning - early contributions have the biggest impact - and can invest up to £2,880 per annum which will benefit from basic rate tax relief meaning that £3,600 is actually invested into the pension fund which grows in a tax efficient manner.

You might also want to think about using your own ISA allowance to build up funds. Obviously, the funds would be in your name but, you have the opportunity to invest up to £10,860 into an equity ISA per annum in funds that grow free of capital gains and income tax.

Finally, investing into unit trusts or International Investment Bonds using approprate trusts are other product areas worth considering.

A financial adviser will be able to explain the options and help you decide on what kind of savings for children are right for you. If you would like to speak to an LGBT-friendly financial adviser about this or any financial matter, please enter your name under the map on the right to find an adviser near you.

Additional Reading

  • Hedge Funds

    Hedge Funds use aggressive strategies unavailable to mutual funds. This includes selling short, leverage, program trading, swaps, arbitrage. Read our guide to find out more.
  • Exchange Traded Funds

    So what are ETFs? These are funds that track an index, but can be traded like stocks. But beware - make sure you understand the risks.
  • A Stranger's Child

    Book review of A Stranger's Child by Alan Hollinghurst
  • Savings Accounts

    Read our guide on savings accounts.
  • Savings & Investments

    Are you looking for the right savings and investments to boost your personal finances and spread your risk? Our simple advice on savings and getting started will help

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