A Flying Start for Your Grandchildren

If you are a caring grandparent who wants to save for their grandchildren's future, the first thing to do is to ask the child's parents about whether they themselves have started a savings account for them. You can say you would like to add to this or open a new account for them yourself. You'll find there is a wide range of options available.

One thing you can do is to contribute to your grandchild's Child Trust Fund (CTF). These unfortunately were stopped in January 2011, but friends and family members can still contribute to existing CTFs until the child turns 18. The CTF is a long term plan for savings and investment set up by the Government to encourage parents to put money aside for their children's future. Most over 5s have received an initial £250 by the Government with which to open their CTF accounts and to which family and friends can add to with a limit of £1,250 each year. CTFs are exempt from income tax or Capital Gains Tax.

It is useful to remember that children just like adults are given a personal allowance of £6,475 which effectively means that for most children their savings are tax free. Grandparents can remind the parents to complete an R85. There is a limit on how much tax-free interest gifts from parents and relatives can earn - this is to prevent parents from using their children's accounts for their own savings. However, the good bit for grandparents is that this does not apply to their own gifts to the children. This means you can deposit a gift to your grandchild and this won't affect either your or your grandchild's taxeable allowance. The only stipulation is that the total amount interest is kept within the £6,035 limit.

There are other savings plans for children who don't qualify for CTFs on account of their age, for example if born after the CTF was stopped in January 2011. These plans are just as tax efficient but of course do not have the free £250 voucher.

Junior ISA

For example, there is to be a junior ISA (Individual Savings Account) which was introduced as replacement for the CTF with many of its features. Similarly there is an annual limit on contribution the amount of which has not been yet decided. All children are eligible to have an ISA and particularly those born in between the end of the CTF and the launch of the Junior Isa. Children will not be able to access their funds until they are 18 with all returns then tax free.

Tax Exempt Savings Plans (TESPs)

These are available to open for your grandchildren at most building societies. Parents and grandparents are able to save up to £25 for each family member monthly. AS with the CTF and ISA it is free from income and capital gains tax. More information on Tax Exempt Savings Plans.

Unit Trust for Children

These allow you to set up an account for your grandchild in your name for the benefit of the child. Legally, children under 18 are not allowed to own shares but adults can open them on their behalf and identify them as the beneficiary.

Children's Bonus Bonds

These are available from National Savings and Investments and can be opened for a child under 16 by a grandparent or any adult. Just invest a lump sum to open the account and interest will be added every year with a top up bonus every five years until the child reaches 21. Further instalments can be added up to £3000. Although the child owns the bond it is controlled by the parents or guardians until the child's 16th birthday - after which the child takes control of the account.

For details of useful comparisons and details of other savings plans available for you to help your grandchildren build a good financial start to life see www.myeggnest.com where you can also ask their expert for advice as to saving for your grandchild/children. It's a great site for grandparents who may be puzzled by the number of options available.

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