Scottish Friendly Child Bonds

Children are precious. If you are blessed with a child in your life, a son, daughter, niece, nephew or grandchild, you no doubt want to do everything you can to ensure a successful future for that child. You make sure that the child receives all of the nurturing, education and love that is needed for a bright future. But have you done all you possibly can to plan for the child’s financial future?

When a child legally reaches the age of adulthood, there are many expenses that he or she may incur. Education, housing, marital and transportation costs can be difficult to pay for when you are just starting out. Instead of funding these expenses out of pocket when the time comes, why not invest in a child bond that will mature and put tax-free money into their wallet or bank account?
Scottish Friendly is a mutual society. It offers tax-free investments for children under 16, via the Scottish Friendly Child Bond. There are tax benefits that come along with child bonds. This is because under current law you’re allowed to invest up to £25 a month tax-free, with a friendly society like Scottish Friendly. Tax-free means free of income and capital gains tax except for tax on dividends from UK shares. Like any tax break it depends on individual circumstances and tax law can change in the future.
If you make small monthly payments and do not cash in the bond early, you can expect to save the money tax free. There will be no gains or income tax due when the child’s policy matures. However, if the policy is cashed in early, the child may have to pay tax on any profits made. If you cash in the policy very early, such as in the first two years, the child will get nothing back and after two years they may get back less than you have paid in.
The Child Bond enables you to develop a regular savings habit for a child you care about. You make small monthly payments into the Child Bond of £25 per month – which is the tax-free limit set by the government. The child bond is the property of the child and you can be sure they’ll appreciate the extra money when they are older. You can take out a Child Bond for as many children as you like, as long as the child does not already have a tax-exempt savings plan either with Scottish Friendly, or another friendly society.
The Child Bond can run for a minimum 10 years or you can invest for longer – to coincide with a child’s 18th or 21st birthday. The investment period for the Scottish Friendly Child Bond is from 10 years to 20 years depending on the child’s age. For example: if the child is 5, you have the option to make investments for 15 to 16 years if you want the plan to mature so that the child receives the pay out when they reach the age of 21.
The Scottish Friendly Child Bond is a with-profits plan. Your money is invested in a with-profits fund which is carefully managed across a range of assets and aims to provide long term growth and a degree of security in the form of a guaranteed minimum cash amount after 10 years. The minimum amount depends on the child’s age and how much you pay in.
At first the minimum sum is less than what you’ve paid in. However, additional bonuses may be added to the total. As well as annual bonus payments which may be provided, a final bonus payment may also be included at the end of the term. The bonus value is not set in advance – the value of child bond bonuses is dependent on how much profit the fund makes and how it is decided that the profit should be distributed. Bonuses are not guaranteed.
As a condition of the tax benefits, with Child Bond you also get life insurance for the child. You should consider if this is appropriate for the child’s financial needs. The level of cover depends on their age and your payments into Child Bond. Of course, hopefully the life cover won’t be needed, so that the child could have something to build on when he or she starts out for adult life.