Your Questions Answered
Please see below answers to some of the most commonly asked questions about our long term savings plan for children - the Children's Tax Exempt Plan.
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About the Children's Tax Exempt Plan
What is the Children's Tax Exempt Plan?
The plan is a tax free unit linked savings plan and is a way of investing for a child over the long term. The money that you contribute into the plan is invested in a fund which is free of both income and capital gains tax, although dividends earned on the equities within the fund will have been taxed at source and cannot be reclaimed. Contributions should be maintained for the term of the plan, which can be anything from a minimum of 10 years to a maximum of 25 years, providing the end of the term falls after the child's 16th birthday. The cash sum at the end of the term belongs to the child.
For further information on Tax please see the relevant section in the Children's Tax Exempt Plan Key Information Document and Important Information.
Who can take out a Plan?
Anyone can take out a Children's Tax Exempt Plan on behalf of a child. The child must be a UK resident and under the age of 16. You can pay into as many Children's Tax Exempt Plans as you like, provided each one is taken out in the name of a different child. The plan is the property of the child and all contributions should be seen as a gift to the child. The child cannot hold more than one tax exempt plan with POIS or any other friendly society.
What if the child already has a Junior ISA or Child Trust Fund?
The Children's Tax Exempt Plan can be held in addition to Junior ISAs, Child Trust Funds and other tax free child savings accounts. Tax Exempt Savings Plans are unique to Friendly Societies and the child cannot hold a Children's Tax Exempt Plan if they already hold a tax exempt plan with POIS or any other friendly society.
Do I need to get the child's parents' permission to take out a plan?
If you are not the child's parent or guardian, we will ask you to confirm that the child's parents/guardian agrees to you setting up the plan. We are required to send them a copy of the plan documentation, so we will also ask you to provide their details as part of the application process.
Who will the plan documents be sent to?
Children's Tax Exempt Plan documents will always be sent to the child's parent/guardian.
If the person paying into the plan on behalf of the child is not the parent or guardian, they will receive a copy of the direct debit agreement to show they are paying the contributions into the plan.
What are the charges?
As with any investment, there are costs involved and we deduct charges from the value of your plan to pay for the cost of managing the fund, administering the plan and to cover the costs of setting up the plan.
Does the plan include life cover?
Although the plan does not protect against the financial consequences of death, for the plan to qualify for its tax exempt status, life cover must be included for the child once they reach the age of ten.
Until the age of ten, the life cover will be limited to the return of contributions received. After the age of ten, the life cover is calculated at 75% of the contributions you are due to make over the term you have chosen.
In both cases life cover is only available so long as contributions are being paid. In addition, if the value of the plan is greater than the life cover we will pay the plan value.
Payments into the Plan
Can I pay a lump sum into the plan?
It is not possible to make a lump sum payment into the POIS Children's Tax Exempt Plan. Regular payments can be made monthly by Direct Debit, or if your employer allows you can pay contributions weekly or monthly through deductions from your pay.
Where is the money invested?
When you invest money in the Children's Tax Exempt Plan you are purchasing units within the POIS Flexible Growth Fund. The aim of the POIS Flexible Growth Fund is to achieve long term growth, whilst spreading risk across a wide range of investments.
For more information on the fund and investments please see the POIS Flexible Growth Fund tab in the Fund information section.
What is a unit?
The value of the fund is divided into units. The price of each unit is based on the value of the fund, divided by the number of units in issue. Every contribution you make will buy a certain number of units. The number of units bought will depend on the price of those units on the day the units are bought. The value of the investment is calculated by multiplying the number of units held by the current unit price.
The price of the units may go down as well as up and you may get back less than you have paid in.
What happens if the plan is cashed in early?
The child cannot cash in this plan until they reach the age of 16 but the parent or guardian can apply for the surrender or cashing in of the plan at any time until the child reaches 16. The sum due on surrender will be paid out in the child's name at all times, as the plan is for the sole benefit of the child.
Please note that if the plan is cashed in before its 10th anniversary a charge will be deducted before the cash sum is paid. The amount of the charge will depend on how long you have held the plan, and the charges are shown in the table below.
In the early years, it is possible the plan value may be less than the surrender charge due. In that instance, no plan value will be paid out and no further charge will be payable.
If cashed in early your child may be liable for tax on any growth.
For further information please see the section on 'Tax' in the Children's Tax Exempt Plan Key Information Document and Important Information.
What happens if I stop paying?
If your salary deductions stop or are suspended, or your Direct Debit is cancelled, you should contact us immediately to discuss your options.
If you stop making contributions, life cover will cease, so, if the child dies, the only payment made will be the value of the plan. You do however, have 13 months to pay the missing contributions, altogether in one lump sum, and continue paying into the plan. If, at the end of the 13 months, you have not made up the missing contributions the following will apply:
What happens if I or the child dies?
If you die whilst you are paying contributions, someone else can take on the responsibility of continuing payments into the plan.
If the child dies during the term of the plan, the child's estate will receive a cash pay-out. Depending on the value of the child's estate, Inheritance Tax may be payable.
Returns on the plan
How much could the child expect to receive?
The figures below compare potential cash sums at three different growth rates for a Children's Tax Exempt Plan for £25 per month for 18 years, which apply no matter how old the child is.
You will receive a specific illustration when you receive your plan documents.
Each year shortly after the anniversary of the plan we will send a statement showing the plan's current value.
If you have any questions, please contact us on 0800 622 417 or at email@example.com.