By Mike Hughes, Castle Trust
The Equity Release Council recently released figures showing the ‘Bank of Mum and Dad’ is currently contributing £23 million every month to the housing market.
During the last five years, over 228,000 first time buyers have been helped by their parents to put down a deposit – resulting in the Bank of Mum and Dad forking out £1.3 billion in deposits. Roughly one in three first time buyers currently receive a financial leg-up from their parents and these statistics are expected to grow in line with increasing property prices. The numbers are even higher when you add in the help from other relatives, such as grandparents.
When you decide to start saving for your child’s future – whether in dedicated bank and building society accounts, Child Trust Funds (CTFs) or Junior ISAs – doing your homework and having a good understanding of the options available to your child is essential.
It’s worth a quick reminder while I’ve got your attention. There are two types of Junior ISA: cash Junior ISAs and investment-based Junior ISAs. If you are thinking of putting money in a Junior ISA, you must first decide which you would like, whether it be one or both types.
One of the benefits of Junior ISAs is that they are free of any income and capital gains tax. Anyone can pay into your child’s Junior ISA but, between the two types, you cannot exceed the annual total of £3,600 (£3,720 in the 2013/14 tax year). For grandparents wishing to invest in their grandchild’s future, Junior ISAs are also a great way to reduce their inheritance tax bill by using some of their £3,000 annual gift allowance.
All children are eligible for a Junior ISA as long as they are under 18, live in the UK and did not qualify for a CTF account. A parent or guardian is responsible for the account until the child is 16 and money cannot be removed from the account until the child reaches 18. At this point, the child can choose to remove the money from the account or it will be automatically converted into an adult ISA where they can continue to save.
There is a wide range of cash Junior ISA rates and a large number of providers offering investment-based Junior ISAs with access to a variety of investment styles and asset classes.
If your goal is to help your child get onto the property ladder, investing in a product that beats UK house prices (whether they rise or fall) could be a wise choice. Castle Trust, through house price-linked investments known as HouSAs, offers you the chance to receive house price returns tax free.
What is vital is that you don’t delay making these decisions. As with all savings, the earlier you start, the less painful it will be. Today, many parents are working beyond their planned retirement age, using their retirement savings or even remortgaging their own houses to help their child with the financial burden of buying their first home. This can not only cause resentment among family members but can also have a negative impact on parents’ standard of living.