If British society really does include what may be described as ‘The Squeezed Middle’, some of its ranks are probably among the readers of this newsletter. Like all segments of a civilised society, The Squeezed Middle care about the future of upcoming generations, whether in environmental, social or financial terms. Those generations will face stiff global challenges, so assisting their basic financial security is a natural instinct for many parents and grandparents.
Some self-made multimillionaires have conspicuously claimed they will not finance their offspring, who will have to make their own way. The rationale is admirable, but in reality money would probably be available if things went badly wrong. This would be less certain for children of The Squeezed Middle, with tuition fees, a difficult jobs market and eventually a rising state pension age lying ahead of them.
Handing wealth down from generation to generation has preoccupied the aristocracy for centuries. Now The Squeezed Middle need to follow suit, without necessarily creating complex family trusts, though such vehicles could have their place in some families’ plans. The whole process often involves wider inheritance tax and estate planning, but here are two tax-efficient ways of getting resources to the next generation at crucial lifestages.
When Chancellor George Osborne decided the Exchequer could not afford Child Trust Fund contributions, he announced plans for new Junior ISAs. These will become available from 1st November, allowing up to £3,600 per annum to be invested in cash or stocks & shares, with tax breaks similar to existing ISAs. Parents, plus other relatives and friends, can help youngsters to a tidy sum at the age of 18. If headed for university, the young adults can be spared the financial and psychological impact of huge student debt. If they have other plans, access to their own resources should give a similar boost.
Some far-sighted parents are already addressing the question of how their offspring will manage financially much later in life. This can be addressed, tax-efficiently, by setting up a stakeholder pension for a child and contributing up to £3,600 per annum gross, at a cost currently of £2,880 per annum before basic rate tax relief at 20% is added. For more information about these and other ways to invest for the upcoming generation, please contact your adviser.
HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes that cannot be foreseen.