Investing for the next generation

Plan for your children’s future

It’s never too early to start planning for your children’s future. There are specific tax wrappers aimed at children which make it possible to build up a decent sized nest egg without paying any tax.

You can open a Junior ISA as soon as your child is born and pay in up to £9,000 each tax year under the 2023/2024 allowance. There are cash Junior ISA’s and stocks and shares Junior ISA’s. A stocks and shares Junior ISA enables you to invest in the stock market and benefit from market growth. Your child can’t access their money until age 18, which means there is plenty of time to ride out any market volatility and enjoy the benefits of compound interest. If you open a Junior ISA at birth and invest the whole £9,000 a year, the portfolio could be worth £255,953.68 by the time the child reaches 18, assuming an annual growth rate of 5%. Even investing £50 a month is worth it, as this could produce a pot worth £17,460.10 at that level of growth. A vital point to remember is when the child reaches 18, they can then access the money and the parents will have no control over this. While the parents may have been saving for a house deposit or university fees, the child may have different ideas for the money like exploring the world or a new car.

The other option is a Junior SIPP where you’re able to pay up to £2,880 each tax year under the 2023/2024 allowance and the Government will add tax relief of 20% to make this up to £3,600. The time horizon of a Junior SIPP is much longer than an ISA. Under current rules, they won’t be able to access the money until 10 years prior to their state pension. As the investment time horizon is so long, you may want to consider investing in higher-risk assets such as shares in smaller companies or an emerging market fund.

The past performance of any investment is not necessarily a guide to future performance. The value of investments may go down as well as up.