Lump Sum Child Investment!

natsplatnat

Hello everyone!!

I usually post over on the DFW thread but I have a more specific question, that I hope you lovely people on here can help with.

My step-son (aged 7) has been left a £10,000 legacy by his grandmother. Just to kepp things moving with regards to the money being released by the estate, a child savings account was opened by my OH - the money has now been deposited into this account. There are no withdrawal limits or penalties on the account.

Due to the current change in interest rates etc, I was wondering if anyone had an ideas to bounce around as to the best way to build this money for his future? Is a child savings account the best way forward or would a normal high interest account work better - even after paying tax on some of the interest?

Any thoughts would be gladly welcomed. Many thanks in advance for your help and apologies if I have posted this in the wrong place!

Nats x

Robert_Sterling_3

It is the right place for your query.
It is a difficult question to answer.
There are no safe accounts with a good return at present.
If you happen to have an offset mortgage there is an opportunity for the boy to benefit from that.
He will not pay tax on his savings.
You might hope to get about 3.5% at best.

natsplatnat

Hi All - some extra info! (and thanx for your reply Robert!)

We do not have a mortgage of any type.
I thought that everyone has a tax code - savings would count 'as an income' and therefore only a certain portion would be tax free?

Any more suggestions gladly received - just looking for a bank of ideas for us to investigate further!!

Lokolo

Under 16s only pay tax on parents gifts when having over £100 interest I think. I don't think grandparents money counts.

Mikeyorks

natsplatnat wrote: »

I thought that everyone has a tax code - savings would count 'as an income' and therefore only a certain portion would be tax free?

Tax will only be an issue if you put the money in your name (in order the youngster doesn't automatically have entitlement to it at 16). If it's in his name ..... he has a personal allowance of £6035 (08-09) ..... and you won't get close to that in interest (per year).

Perhaps you were thinking of the £100 threshold more normally associated with children? But that only applies to interest generated from money contributed by the parents. So you can cheerfully find the best account .. if you leave it in his name.
This might help :-

http://www.moneysavingexpert.com/savings/child-savings-tax-free

EDIT ..... but don't forget to file an R85 on his account - in order the interest is paid tax free. Even if it's a dedicated children's account (eg Halifax Save4it) .... it is not automatic ... other than in rare cases.

natsplatnat

BUMP!! any more ideas? Thanks x

cloud_dog

OP, you are correct, everyone has a tax code and your step-son can earn income of £6035 in the 08/09 FY before being taxed.

You need to complete the Inland Revenue form R85 to claim interest gross.

The £100 interest limit is only applicable to monies deposited from the child parents/guardians, i.e. grapndparents do not count. It is probably wise to retain proof the monies originated from a grandparent, just in case.

At present I do not think there are really many other options. I assume you are not prepared to incur some risk on a percentage of the £10k to possibly acheive a greater return in the long run, i.e. funds (stocks and shares)?

Edit: Just noticed that I seem to have repeated a number of comments from Mikeyorks :-(

cloud_dog

The_MoneySavingKid

You may want to look at a CTF?
I noticed that you said he is now 7? As far as I know he should recieve another £250 voucher.
I'm sure others will be able to tell you more.

natsplatnat

An extra £250? I was not around at the beginning (hence step-son) so please excuse my ignorance and could some one elighten me on this whole £250 thing. I am aware that kids now get a voucher when born, but having no kiddiewinks of my own am now lost!!

Thanks everyone!! :O)

Mikeyorks

natsplatnat wrote: »

could some one elighten me on this whole £250 thing.

Only applies to children born after 1st Sept 2002 ...... if he's 7 already, then he was born earlier?

http://www.moneysavingexpert.com/savings/child-trust-fund-vouchers

natsplatnat

Yep, he's older, Jan 2002.

Back to the drawing board I'm guessing. What would peoples thoughts be on investing in premium bonds?