Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Youth may be wasted on the young, or so they say, but one thing you don’t want them to waste is the unique opportunity to make their money grow. 

With so much time on their side, whether you’re investing for your own child or grandchild, a niece, nephew or godchild setting them on the path to financial security as early as possible is arguably one of the best gifts you can give them.

Whether you want to top up their Junior ISA or set them up for a comfortable retirement, knowing what you can and cannot do makes the journey easier. Here we sift out the fairy tales and give you the facts about investing for children.

Myth no 1 - Children don’t pay tax

Contrary to popular belief, children are liable for tax, although few are fortunate enough to earn enough on their savings and investments to actually pay any.

Just like an adult, they only start to pay tax once they earn above their personal allowance, which is currently £12,750 - and will remain at that level for the next tax year too.

The rules are tougher though if the interest is earned on money from a parent. If your child earns more than £100 in interest in any tax year from money you have given them, then you will find that you are personally liable for tax on the interest earned if it’s above your personal allowance.

The good news for grandparents, aunts, uncles, godparents and anyone else who gives money to a child, is that the same tax liability does not apply. 

Myth no 2 - If they already have a Child Trust Fund they can’t have a Junior ISA

If your child was born between 1 September 2002 and 2 January 2011 they may still have a Child Trust Fund (CTF). Although no new CTFs are being issued, you, family and friends can still pay into the account until your child reaches 18. And like with a Junior ISA you can still add up to £9,000 a year.

While it’s true that your child cannot have both a CTF and a JISA, you can now transfer the money into a JISA instead. The benefit of doing this is that some JISA providers pay a higher interest rate than is available on CTFs and you can easily switch between JISA providers if you want to.

Myth no 3 - Children can’t have a pension

Actually, they can. You can start saving into a Junior SIPP as soon as your child or grandchild is born. Each child can have a total of £3,600 a year, or £300 a month, saved into a pension. Just as with your pension, the government automatically tops up payments by 20%, so for your child to have the maximum £3,600 a year, total contributions only need to come to £2,880.

Of course, it’s pretty much inevitable that tax rules and reliefs will change between now and your child’s retirement, and you have to factor in inflation, which will erode the spending power of any money built up in the pension, but you cannot doubt that this is the ultimate way to make sure your child has the makings of a secure financial future – even though you won’t be there to see it.

Myth no 4 - If you give your grandchildren money you’ll pay tax

While parents who save or invest money on their children’s behalf can face a tax bill if their child’s savings or investments earn more than £100 in any tax year, the same does not apply to you when you’re a grandparent. 

Myth no 5 - Your child can’t get their hands on the money 

With a JISA, the child can take control of their account when they turn 16, but they cannot withdraw the money until they are 18. If they still have a CTF at the age of 18 the account will automatically go to them, and they can either withdraw it or transfer it to an adult ISA. 

Make a point of talking about your child’s savings and investments with them as early as possible. Getting them involved and showing them how it’s growing nicely over the years is a good way to instill a savings habit in them that will, hopefully, pay off.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Junior ISAs are long term tax-efficient savings accounts for children. Withdrawals will not be possible until the child reaches age 18. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf.  If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA.  Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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