Helping Hand

JM Group
27 February 2018
 

 

The end of the tax year presents a final chance to make use of tax allowances and exemptions that can give children a big step up the financial ladder.

“Saving is a very fine thing. Especially when your parents have done it for you.” As the intergenerational wealth divide widens, Winston Churchill’s often-quoted words now resonate increasingly with grandparents and other family members as well.

We all want the best for the children in our lives. We don’t know what their future will hold, but want to make sure they have every opportunity to do well and be happy, whatever they eventually decide to do.

Of course, money isn’t everything, but starting to save early on their behalf might make the difference between whether or not they can afford to do what they would like when the time comes.

The pleasure to be had from being able to see younger generations benefit from lifetime gifts also needs to be measured against the very real need to help them deal with today’s financial challenges.

The figures are all too depressingly familiar to younger generations. Research by The Sutton Trust revealed that English university students will graduate with an average debt of £44,000; by far the highest level in the English-speaking world and more than double the average debt levels at universities in the United States.¹

First-time buyers now need to put down an average £33,000 deposit to get onto the property ladder. Unsurprisingly, that means the typical first-time buyer is now aged 32.²

It means that what was once a ‘nice to do’ savings idea is increasingly becoming a necessity. But putting away funds for the benefit of children or grandchildren can also play an important role in helping families come together to bridge the intergenerational divide. In doing so, they can reduce the burden of Inheritance Tax (IHT) to ensure more wealth remains in the hands of the family and not the taxman.

Perhaps the most important opportunity to combine lifetime estate planning with saving for children is the annual gifting exemption. You can make gifts worth up to £3,000 in each tax year, and carry forward last year’s, if you haven’t used it already. That means a couple could potentially remove £12,000 from their joint estate immediately, as long as they use both years’ allowances by 5 April.

You can pass on larger amounts of money free of IHT, so long as you live for seven years after making the gift. It’s also worth considering the ‘normal expenditure out of income’ rule. This allows you to make regular gifts out of income which are exempt from IHT as long as they don’t affect your standard of living.

Long-term plans

A tax-efficient Junior ISA is justifiably the first option for most savers to consider. A maximum of £4,128 can be invested for each child in a Junior ISA in this tax year, rising to £4,260 from 6 April. Savers can typically invest a lump sum or make regular contributions, providing the flexibility to fit in with gifting plans.

Launched in November 2011, the scheme was initially slow to catch on, although 794,000 accounts were subscribed to in the last tax year. A total of over £3.3 billion is now held in Junior ISAs – a testament to the scheme’s growing popularity.³ And yet many of those generously making Junior ISA contributions risk failing to make the most of the opportunity. Nearly 60% of Junior ISA funds are deposited in low-paying savings accounts.

“Junior ISAs are designed to be long-term savings vehicles, and those who save for their offspring or grandchildren at the earliest opportunity have got 18 years for the money to grow before the funds are transferred into a standard ISA,” says Phil Woodcock, Head of Investment Communications at St. James’s Place. “For those who choose to invest in a Stocks & Shares Junior ISA, that should be plenty of time to ride out market fluctuations and benefit from the compounding effect of tax-efficient income and growth.”

It might be considered a disadvantage that a child can access Junior ISA funds when they reach the age of 18, as there is a possibility that shorter-term financial priorities take precedence. At the other end of the age scale, it’s worth remembering that anyone can contribute to a pension plan for a child; but of course, that means the funds will generally be unavailable until the beneficiary is aged 55. That said, this could also be an advantage because it enforces a long-term view of saving.

A net annual contribution of £2,880 would attract tax relief of £720, making a total investment of £3,600.

As the end of the tax year approaches, there is limited time left to explore and make use of the allowances and exemptions available to help shape the future of the children in your life.

 

¹ The Sutton Trust, Degrees of debt, April 2016
² Halifax First-Time Buyer Review, July 2017
³ HMRC, Individual Savings Account (ISA) Statistics, September 2017

Brought to you by Lynn Anderson Ltd, Founder Member and Principal Partner Practice of St. James’s Place Wealth Management

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

 

 

BLOG

Mobile World Congress 2018 Predictions

The biggest mobile show on earth, Mobile World Congress, is about to take place in the Mobile World Capital of Barcelona for the 13th year in a row. At this year's event, the prominent theme is "creating a better future with mobile technology," with mobile communication now reaching nearly 5 billion

13 February 2018

Diversity & Inclusion

Creating a diverse and inclusive work environment is essential in order to compete for top talent amidst changing demographics.  This infographic points to the business benefits of diversity and illustrates how the working population is changing in terms of gender, age, race and ethnicity.

15 May 2018

Save Billions By Thinking Of Your Influence Strategy - By Applied Influence Group

Upon reading the news headlines this morning, I was astounded to see this story detailing that one tweet from Kylie Jenner, a reality TV star, had knocked $1.3bn off Snapchat's stock market value. It begs the questions why did this happen and what could Snapchat have done to avoid it? Snapcha

12 March 2018

5 Tips to be a Digital Hero

To be honest, I hate using the word digital. To me saying that a company is digital is about as useful as saying it runs on electricity. It's what you do with digital technology to achieve your organization's goals that makes the difference. Digital should be part of the DNA of the organization and

24 April 2018

Mood, Emotion, Temperament & Jamie Carragher

First things first, this is not an attempt to excuse what Jamie did. Just an examination of some of the factors that might have been at play and what we can learn to stop ourselves from reacting badly to situations. I'm probably not the only one who was quite surprised to see Jamie Carragher in t

12 April 2018

Helping Hand

The end of the tax year presents a final chance to make use of tax allowances and exemptions that can give children a big step up the financial ladder. "Saving is a very fine thing. Especially when your parents have done it for you." As the intergenerational wealth divide widens, Winston Chur

27 February 2018

Top IT Skills in Demand for 2018

One of the most common questions we get asked is: 'What are the most desired skills for the IT industry?' Here are some of what we believe to be the most in-demand IT skills so far this year: Top IT Skills SlideShare

02 May 2018

Employee Retention

Are you doing everything you can to retain your current employees?  In an increasingly tight market, organisations should be implementing solid retention strategies that include creating a great culture, offering development opportunities and competitive pay rises.  

14 May 2018

Brexit and IT Recruitment

The UK relies heavily on the immigration of EU citizens to make-up its workforce.  Over 2 million EU nationals work in Britain and over a fifth of UK start-ups are led by EU entrepreneurs.   Brexit may mean the end of free movement of EU citizens as restrictions on immigration are put i

26 April 2018

Why Google Won't Eat You

  I love Google Translate. It was in August 2016, in Rio de Janiero, when our eyes first truly met. I picked up Google Translate on my iPhone at the 2016 Olympics, and it turned out to be a lifesaver. Alone in the city, it allowed me to get around the city without having to depend on

27 March 2018

Enterprise DevOps Transformations

Changes to Anticipate with Enterprise DevOps DevOps in a larger, mature organisation is different from its small and brave counterparts. For a start, it is far harder to embrace change. So when a movement like DevOps comes along, with its commitment to agile, it can be hard to re-organise and

03 May 2018

Top IT Skills in Demand 2018

One of the most common questions we get asked is: 'What are the most desired skills for the IT industry?' Here are some of what we believe to be the most in-demand IT skills so far this year: /uploads/library/files/Top%20IT%20Skills%20SlideShare.pdf

02 May 2018

Perceptions of Change: How Much Intellectual Humility Have You Got?

By Applied Influence Group Prior to Barack Obama's decision in April 2016 to authorise the mobilisation of ground troops in Iraq and Syria, he had called the US' intervention in the region 'a dumb war', he had opposed previous troop surges during the Bush administration, promised to withdraw all

16 January 2018

5 Tips to be a Digital Hero

To be honest, I hate using the word digital. To me saying that a company is digital is about as useful as saying it runs on electricity. It’s what you do with digital technology to achieve your organization's goals that makes the difference. Digital should be part of the DNA of th

24 April 2018

The Hidden Benefits of Enterprise DevOps

DevOps can drive process benefits to an enterprise For those of you that have been stuck under a rock for the last few years, DevOps is a way of developing, deploying and supporting applications in the most responsive and coordinated way possible. Once it becomes established on a running pr

09 April 2018

Why Google Won't Eat You

  I love Google Translate. It was in August 2016, in Rio de Janiero, when our eyes first truly met. I picked up Google Translate on my iPhone at the 2016 Olympics, and it turned out to be a lifesaver. Alone in the city, it allowed me to get around the city without having to depend on anyo

29 March 2018

Annual Leave Infographic

The always-on nature of work has contributed to a decline in annual leave usage.  Unused holiday time not only hurts the economy due to lower holiday spend, it perpetuates a culture of burnout, ultimately reducing employee productivity.  The antidote to this is for employers to create a co

16 May 2018

Quit Your Job the Right Way

31st January is the day workers are most likely to hand in their notice. If you are one of these people looking to move on then it's important to hand in your notice the right way. We Brits generally don't enjoy confrontation or awkwardness, so for most people, giving notice is not usually an enj

17 January 2018

Human-Centric Mobile Trends 2018

Tired of buzzwords, glitchy new handsets, smartwatches, talks about how AI will replace employees, virtual reality shopping replacing physical stores, and other technology trends that hardly impact you in the short term? Then this is the trend report for you. We believe that the winners of th

24 January 2018

Mood, Emotion, Temperament & Jamie Carragher

First things first, this is not an attempt to excuse what Jamie did. Just an examination of some of the factors that might have been at play and what we can learn to stop ourselves from reacting badly to situations.   I'm probably not the only one who was quite surprised to see Jamie Ca

12 April 2018
Top