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Investments
not available for children
ISAs
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Special
rule relating to Children
The main source of funds available for children will be gifts
from parents and other family members. All gifts are subject
to Inheritance Tax considerations, which are not generally onerous
unless the donor is likely to be within 7 years of death.
Otherwise the only rule is applicable to gifts from Parents:
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• There is an annual income limit
of £100 that a Child can earn on
investments made
from parental donations. Above this level, the
income is taxed
on the Parent. In addition any gains are taxed
on the parent. |
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Factors
affecting the style of investment
The size of the funds available
The regularity of the gifts
Who the donor is
What the donor wishes
Attitude to risk
What the objective is:
To build up funds for early adulthood
(repay loans/car/house
deposit?)
To pay school fees
To safeguard their retirement
To introduce them to the world
of finance
To avoid Inheritance Tax on the
donor
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Potential
Solutions
All solutions will depend on individual circumstances, but
here are a few rules of thumb.· Try to link the strategy
to what the donee might think as a young adult.
• If there is more
than one child, adopt the same strategy. It would
not be good to invest
in the UK for one and Europe for the other –
the results will be different
and funds may need to be equalized.
• Open a children's
account at a Bank/Building Society (see
Savings link).
• Buy a Children's
Bonus Bond from the Post Office. This is
limited to £3,000
per issue, but the income does not count towards
the £100 limit
from parental gifts. So it is particularly suitable for
Parents.
• Remember the investment
is likely to be for the long term so
consider Unit Trusts
(especially if the gifts are likely to be regular).
If you invested £100
in a bank 25 years ago, it would be worth
roughly £200 now.
If it was in UK equities it would be worth
around £700 now.
• Consider a Personal
Pension. The rules introduced on 6 April
2001 allow children
with no income to have a Personal Pension
limited to £300
per month. But as set out in Pensions
– why have
one?
the funds can't be realised until the Child is 55. The Child
is
surely going to think
that this is too sensible, but it may suit you!
It is a good option.
• If the funds are
substantial consider setting up a Trust. |
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