Financing Higher Education
The good news is that you have up to 18 years during which to save a university nest egg. The bad news is that some experts claim that nothing less than a pot of £60,000 will be enough to see a child through higher education.
The better the interest rate or return you earn, the less you will need to put away per month. If you saved £170 per month over 18 years with an annual return of 5% on your savings, you would generate a pot of around £60,000 (before any costs or tax). The same monthly investment at an annual rate of return of 6% would result in a pot of £66,000 after 18 years.
But £170 per month is an unrealistic sum for many families. Monthly savings of £25 at an annual rate of return of 5% would generate around £8,700 after 18 years.
Investment experts claim that if anyone is looking to save for 10 years or more, they should consider a stock market-based investment of some sort. These have historically produced better returns over longer periods than high-street bank or building society savings accounts.
A junior ISA is a tax-free way to save for your child. You must be under 18 to have a junior ISA. You can convert child trust funds to junior ISAs. The maximum you can put in each year is currently £4,260 (tax year 2018/19).
Helping Children Buy Homes
Although there have been a few changes in legislation such as the exemption on stamp duty for properties up to £300,000 and the Lifetime ISA many parents and grandparents wish to help their children or grandchildren get on the property ladder. You may want to gift a deposit which will also reduce your IHT. The most important thing to remember is to ensure that you can comfortably afford to help your children buy a property…
The Lifetime ISA allows savers aged 18-39 to stash away up to £4,000 a year and bag a 25% top-up from the Government. The money must be withdrawn for a buyer's first house, up to the value of £450,000. It can also be used for retirement. If the cash is used for something else, you'll be charged a 25% penalty fee.
School Fee Planning
Private school fees continue to rise much faster than inflation or average earnings, making it more important than ever for parents considering taking this route to plan ahead.
The cost of sending children to private school has increased by more than a fifth over the past five years, according to new research from Lloyds Bank. Average annual day school fees now stand at £13,000, equivalent to around 39% of earnings for parents on an average UK salary of £35,148.
The total cost of a private school education from reception to year 13 costs an average of nearly £153,000. Costs are highest for parents living in the capital, where average private school fees from reception to the age of 18 is £176,301. Parents in the North pay the lowest school fees, totalling an average of £123,447, around £53,000 less than in London.
Despite soaring costs, according to the Independent Schools Council (ISC) there are a record number of pupils at private school. Nearly 523,000 pupils currently attend 1,301 ISC member schools, the highest level since records began in 1974.
Given paltry savings returns in today’s low interest rate environment, parents who are willing to accept a level of risk may want to consider investing in stocks and shares rather than cash, as over long-term periods, historically returns from equities have far outperformed cash.
However, it’s important to remember that past performance should not be seen as a guide to the future, and there are no guarantees that this pattern will continue.
Choosing which funds to invest in isn’t always easy, so if you’re unsure, seek professional advice on the options which are likely to work best for you. Remember too that tax rules could change in the future and the value of any favourable tax treatment to you will depend on your individual circumstances.
For more information on planning your children's future please contact us.