Can my child have a debt-free start?

We think children should chase dreams, not pay cheques. For many families, student loans are the only option to pursue higher education. This means children have to start paying them back as soon as they're generating an annual income above the set threshold (around £27k for 2021).

Living costs can be covered by maintenance loans too and once your child has graduated and started working this loan will also be repaid from their wages once they earn above their yearly threshold.

If this is something you'd like to completely avoid you can think about long-term investments such as a Junior ISA and/or trusts.

Junior stocks & shares ISA

  • £9k annual limit on investment
  • tax-free income from investments & profit from selling the investments
  • contributions from non parents allowed and untaxed

Bare trust

  • a junior investment account within a bare trust
  • no annual limit
  • places the funds in the child’s name meaning you can’t use them for your own benefit
  • uses the child’s CGT allowance — decreasing the chances of you having to pay tax.
  • any contributions from non parents (e.g. grandparents, godparents, aunts & uncles, etc.) are also exempt from income tax.

Both of these products hand over full control of funds to the child on their 18th birthday and keep you from accessing and withdrawing the funds until that happens. The difference is that with a Junior ISA, the money is fully locked until the child is 18 whereas with a bare trust you can still use it for pre-defined, child-specific purposes such as private school fees or sports fees at an earlier point. You cannot however use the money for a house renovation or to buy a new car - we can help you set up a personal investment account for that 😉.

Saving as little as £30 a month from when they are born could mean you generate enough funds to cover one year of university without worrying about debts.

Do you want to stay on top of parenthood finance? Join our community and we'll keep you up to date! If you'd like to speak to us about how Hapi could help you grow your money, drop us a line at contact@hapiplan.com.

Disclaimer:

All writers' opinions are their own and should not be read as personal financial advice.  Individual investors should make their own decisions or seek independent advice. As with any investment, your capital is at risk and may be going up as well as down which means you may be left with less than your initial investment. Past performance is not a reliable indicator of future performance. Please note that tax treatment depends on the individual circumstances or each client and may be subject to changes in the future.


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