Children are expensive. The average cost of raising a child to age 18 is around £231,000 and this doesn't include other possible expenses, from driving lessons or university fees to a house deposit. So, what can you do to help save for your child’s future?
A common choice is to make payments into a Junior ISA designed for children. You can make regular contributions up to the annual limit, tax free. The limit is £4,080 for 2016/17. Money held cannot be accessed by the child until he or she reaches 18 years old.
Another option is to contribute to a personal pension for a child, although this limits access to the money until much later in life. An annual contribution of £3,600 can be made each year under current rules for non-earners and basic rate tax relief can be claimed automatically by the provider (worth £720), even though tax is not paid by your little one.
You can invest into pooled funds as a designated account for the child or under a more formal bare trust. This can achieve a sensible spread of risk in a cost-effective and simple manner and potentially make use of other tax allowances, such as dividend allowance and capital gains tax exemptions.
It’s also possible to buy premium bonds, with a minimum investment of £100 and maximum of £50,000. While there is no certainty of a prize, they might well get a surprise one day.
Whilst we all want to give our children the best, please keep in mind that tax rules are ever changing and everyone’s tax position, and plans, will be different. Remember also that there are risks to investing and you could get back less than you initially invested. There are so many savings options and, of course, it is vital that you do not leave yourself short, as living costs tend to rise and we can't be sure what we will need later in life.
The everyday costs are one thing – raising one child till the age of 18 is currently coming in at around £231,000 in total according to stats from the Centre for Economic and Business Research and LV=.