Investing for children | Friday 13 Sep 2024 (2024)

One of the best things a parent can do for their child is set up an investment account to give them a financial head start later in life.

Grandparents, uncles, aunts or friends can get involved too. Whether it’s a one-off payment into a child’s investment account or a regular contribution, every bit adds up.

Once a child turns 18, they face quite a few costly life events – university education, getting married, buying a house to name but three. Anyone presented with a sum of money to help meet these costs will certainly be thankful. That’s why investing for children is so important.

By investing during your offspring’s childhood, it’s possible to build up sizeable sums. Let’s say, for example, that someone invests £200 a month, starting when their child is born. Based on a 5% annual return after any charges, this pot would be worth just over £70,000 when the child turns 18.

If you want to pay in regularly, AJ Bell offers a regular investment service that could make your life easier. Or if you prefer, you can make occasional lump sum contributions, such as cash your child might have been gifted on their birthday or at Christmas.

Which account should I use when investing for children?

The answer depends on when you want the child to access the money. There are three main ways to invest for a child:

How much can I invest, and what are the tax advantages?

When it comes to investing for children, you can put up to £9,000 a year in a Junior ISA, with all capital gains and income tax-free.

Up to £2,880 per year can be invested in a Junior SIPP – with the government topping that up with tax relief to a maximum of £3,600. As with a Junior ISA, all investment gains are tax-free.

There’s no limit on how much you can put in a Junior Dealing account, but any investments may be subject to tax. Income and capital gains tax are based on the child’s status, although if parents put money into a Junior Dealing account and the investment income exceeds £100 a year, that income is taxed on the parents. That’s why this type of account is more commonly used by grandparents to gift money, rather than parents.

If you’re unsure about the tax treatment of Junior ISAs, Junior SIPPs or Junior Dealing accounts, it’s a good idea to contact an independent qualified financial adviser.

Who manages the investments?

With a Junior ISA or Junior SIPP, the parent or legal guardian is responsible for managing the investments until the child turns 18.

Anyone can set up and manage a Junior Dealing account. And once the child turns 18, you can continue to manage the account until they decide they want to take over.

Can I transfer a Child Trust Fund?

A Child Trust Fund (CTF) is a tax-free savings account available to individuals born between 1 September 2002 and 2 January 2011. And yes, you can transfer a CTF to us.

To get started, you’ll first need to open a Junior ISA. You’ll be asked to provide details of the CTF account, including the child’s Unique Reference Number. Simply complete this form and post it to us.

If your child has already turned 18, they can transfer their CTF to us. They just need to open a Stocks and shares ISA or Lifetime ISA if eligible, and download a transfer form during the application process.

What are my investment options with child accounts?

If you’re interested in investing for children, you’ve a wide range of investments to choose from – including shares, funds, investment trusts and ETFs (exchange-traded funds).

Whatever you pick, one of the best investments for your children’s future you can make is discussing your child’s portfolio with them.

It could pique their interest in investing and finance, and hopefully encourage them to develop their own saving and investing habit when they’re older.

Whether it’s the company that makes their beloved toy, the supermarket where the family stocks up on groceries, or the company that publishes their favourite books, there’s a multitude of names on the stock market which your children might know.

Learn more about investment options

What are the best investments for my children’s future?

AJ Bell doesn’t give advice, so you’ll need to make your own investment decisions. You don’t have to be completely on your own, though – take a look at our investment ideas to get a little help, or a lot.

Choosing where to invest doesn't need to be tricky. Our investment ideas are here to make it easier for those who don’t have the time to fully research all the options, or know where to start. Our low-cost investment ideas can help you build a hard-working portfolio – without having to work hard yourself.

Important information: You can't pay into a Junior ISA with us if your child owns a stocks and shares Junior ISA with a different provider. Remember that the value of investments can change, and you could lose money as well as make it. We don't offer advice, so it's important you understand the risks. If you're not sure, please speak to a financial adviser. How you're taxed will depend on your circ*mstances, and tax rules can change. ISA rules apply.