witan Jump savings plan advice

baron777red

i want to save for my childs future, she is 3 at the moment and i am looking for a savings/investment plan where i can deposit £25 a month for 15 yrs+, and after much research have decided that the witan Jump savings plan seems quite a good capital growth product

i appreciate that it is an investment and there is a risk that my return is not guaranteed,

the fees seems seem very low and but i dont really understand when they say the dealing fee is 1% payable on all shares bought and sold, is this shares that i would buy or that the trust buy? and if it is the trust how often do would they buy or sell shares, if its quite often the fees may get quite high,

i'm not comfortable buying and selling shares myself so would need the investment to be managed by a trust.

and one last thing, do i have to pay tax on the profits, if its for my child, i want to be able to control when my child receives the money and dont want it to automatically tranfer to them at the end of the term

thanks

xrjtg

Witan is an Investment Trust, which means a company that exists solely for the purposes of managing the money raised by selling the original shares. The number of shares is the company is fixed, and the value of the shares changes according to what people are prepared to pay for them on the open market.

As the only way of buying into the underlying fund is to buy shares in the company, Witan are offering you a cheap share dealing service that only deals in Witan shares. For this you will be charged 1% of the value of each buy or sell, with a minimum charge of £1.25, equivalent to 5% on monthly contributions of £25. It might make sense to make larger, less frequent purchase to reduce the effect of this commission.

The website suggests that if annual dividen payments exceed £100 they will be taxed as your income, but that capital growth will be set against your child's allowance, so in effect be tax free.

baron777red

so am i right in thinking that, every month i invest £25 i will be charged a minimum of £1.25 to buy shares with this?

and the way around it is to make less frequent payments to witan, maybe once a quarter instead

Reaper

baron777red wrote: »

and one last thing, do i have to pay tax on the profits, if its for my child

This one is tricky. There are 3 types of tax that may apply - income tax on any income earned, capital gains tax on any growth, and possibly even inheritance tax.
Now any person, be they adult or child has income tax and capital gains allowances. The trick is to try to use the child's allowances rather than your own as they are less likely to have been used up.
Income tax - hardest to avoid if the money invested is coming from the parents. Easy if it comes from other relatives.
Capital Gains tax - some companies such as Jump believe a "Designated" account is sufficent for the tax man to use the child's allowance. Others think a "Bare Trust" is needed. I went for the Bare Trust option to be on the safe side.
Inheritance Tax - only an issue if your total worth exceeds the thresholds and you die before or within 7 years of handing the money over to the child. If it might be an issue then use a Bare Trust instead of a Designated account which solves the problem.

You can read my understanding of the options in my reply to another question here.

I want to be able to control when my child receives the money and dont want it to automatically tranfer to them at the end of the term

Check with your company. Some automatically end it at 18. If you go the designated account route then you should have complete flexibility. If you go the Bare Trust route they may still allow you to continue it past 18, I know my company does (Baille Gifford), though I did see one web site suggesting in theory the child could force you to hand it over at 18 (if they know about it )

xrjtg

baron777red wrote: »

so am i right in thinking that, every month i invest £25 i will be charged a minimum of £1.25 to buy shares with this?

and the way around it is to make less frequent payments to witan, maybe once a quarter instead

Yes. I think Reaper has recently spent quite a lot of time researching the other issues, so his advice should be sound.

baron777red

thanks reaper -

so if i set it up and designate my childs as the benificiary the taxman takes into account the childs tax allowance which is approx £6720 (i think) then any further profit is taxed by the adult at normal income tax, is that right?

and ive also noticed f+c investment savings plan for children seems quite good, there deal fee is only 0.2%, what are your thought on this, thanks

Reaper

Although Investment Trusts are a cheap form of long term investment there are a variety of charges to be aware of. The dealing fee for buying into them in the first place is only one. The government gets its sticky mits in whenever you buy shares in a company and nicks 0.5% too. Once you have got your money in to the Investment Trust then there are annual costs to pay the fund managers to look after the money and other bits and pieces. These are totalled up into a Total Expense figure. So to pick 2 examples of funds offered by F&C:
1) F&C Investment Trust (confusingly the same name as the company) Total Expense = 0.58%
2) F&C Investors Capital Trust. Total Expense = 1.10%

These should be listed in the the Key Features or along with the list of funds available. I'm not familar with the Jump one which I think only offers 1 fund but the Total Expense figure (also known as TER) should be buried in the literature somewhere.

As for tax I'm afraid it is not as simple as you state. If relatives are putting money in then yes the child's income tax allowance can be used. But if parents are putting money in then it only counts as the child's allowance provided the amount of income earned is less than £100pa. Now that is not too bad if you are basic rate tax payers and expect to remain that way, it's only if the parents are higher rate tax payers it is likely to be an issue as dividends are paid net of basic rate tax anyway.
Capital Gains tax is different. This looks at growth by comparing the buying and selling price to see what profit has been made. If it exceeds the allowances then it may be taxed. Both children and adults have an allowance, currently £10,100.
Finally there is inheritence tax. This often does not apply. For example it is less likely to apply to a Bare Trust, won't apply if you survive 7 years after gifting money to the child, and won't apply if your total estate comes to less than £325,000.

In answer to your question about F&C they are the longest running of all investment companies and have a good reputation.