INDEPENDENT FINANCIAL ADVICE CENTRE
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You should remember that past performance is not necessarily a guide to the future. Market and currency movements may cause the value of units, and the value derived from them, to fall as well as rise and you may get back less than you invested when you decide to sell your units. The tax treatment of investments and pensions is not guaranteed and may change in the future.
All the main asset classes are available for children, Deposit Accounts, National Savings, Property, Equities (shares) and Fixed Interest accounts. Most of which are available within the new Junior ISA accounts.
Property, Equities as well as Fixed Interest investment can be arranged within various investment wrappers, the main ones being Unit Trusts/Open Ended Investment Schemes (OEIC’S), Investments Trust and Insurance Bonds. It is also possible to contribute to a pension arrangement in the child’s name and benefit from basic rate tax relief “Click here for more information”. As to which type of investment is most suitable, this is covered in our other section on investment. (click here)
What is important is how these assets are controlled. Whilst “Designated” accounts may be simple they have taxation issues.
Designated account :- The investment could be in either individual or joint names and designated for a child. The investment will remain in your control and you can access the funds at any time you wish and for any purpose you wish.
You will have the option to transfer the investment to your child at any point from their 18th birthday onwards and they can then hold the investment in their own name.
There are potential disadvantages in that the investment would be treated as the investors and therefore potentially liable to Income tax, Capital Gains Tax (CGT) and Inheritance tax (IHT).
Bare Gift Trust :- The investment is effectively held in a trust for the child, as trustees you will be able to withdraw funds from the investment at any time as long as it is for their benefit. At age 18 however they will be absolutely entitled to the trust fund and can insist that the investment is handed over to them at that time.
For tax purposes, any potential income tax or CGT would be treated as belonging to the child and so taxable at their marginal rate. The trust should also be outside of your estate for IHT, as long as the gifts are within your annual exemption of £3,000 each per annum or under one of the other exemptions. Click here for full list of IHT exemptions.
* Please note that if the Beneficiary is the Donor’s child and is aged under 18, unmarried and not in a registered civil partnership any income from collectives or other investments and any other gifts made to the child by the Donor will be assessed for income tax on the Donor at his or her marginal rate if the gross income attributable to that Beneficiary exceeds £100 gross per parental Donor in the tax year."
Investing For Children
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