CTF discussion area

ReportInvestor

Update
For those MSErs who followed Martin's advice and invested their CTF with Ipswich BS when it was still paying the top rate there is some possible good news if you have forgotten to switch as rates fell.

Financial Mail editor

Ipswich BS facing a winter of discontent

Jeff Prestridge thinks they may have to merge to get out of their difficulties.

Be warned: in the even of a merger there is no guarantee that children would get windfalls - but they are getting them in the forthcoming Nationwide takeover of Portman.

So fingers crossed if they are forced to merge . In the meantime, his comments give a pretty clear idea of why rates had to fall.

billyblack

ReportInvestor wrote:

Update

So fingers crossed if they are forced to merge . In the meantime, his comments give a pretty clear idea of why rates had to fall.

I can't say i'm a big fan of this alternative, but... good luck there!

ReportInvestor

Think of it like Premium Bonds "investment" - except you get the interest as well .

cjbilly

reportinvestor - i'm interested in the way you would split the ctf and shares (i.e. best savings account for ctf & separately invest in shares separately). Can you tell me why the HMRC would not be interested in the shares side of things for income purposes and how would you set this up? Thx - Cjb

ReportInvestor

The Revenue would be interested in the shares side for income - but the income would be less than on a savings account (both currently and historically).

Any capital gains earned by the child would come in under his/her annual £8.8K CGT allowance - which should easliy cover it .

So if the shares yielded 2.5% then the child could have £4K of shares before they got to any income limits. [£8K if both parents contributed.] More if the shares were growth shares and yielded less than 2.5%.

So if you split the money 50:50 between cash [inside a CTF] and shares [outside a CTF] you could get up to £16K with no tax to pay.

Otherwise once you get up to £4K cash savings (£2K from both parents) for any individual child then the Revenue cash registers start ringing .

If you went for far eastern stocks, or growth stocks [both more risky], in an shares investment outside the CTF then the income is more likely to be 1% - so your investment could be even greater without attracting tax on income.

But regardless of income tax considerations.

Investment charges can be lower outside a CTF (e.g. Foreign & Colonial IT or any decent tracker fund) and interest rates can be higher inside a CTF (e.g. Britannia 6.25% or Nationwide 6% if you add £240 pa).

cjbilly

Thanks for this - I think I've got it. In any case it makes sense to contribute to a cash CTF to get the decent interest but add to the potential gain by investing in shares / funds outside of the CTF scheme due to lower charges...? I think that's right?

ReportInvestor

Yes. That's it.

I can't guarantee that cash CTFs will continue to beat ordinary children's accounts for the next 18 years, but I think I can almost guarantee that you will be able to get lower charges in equity investment outside a Stakeholder CTF for the next 18 years .

I've never seen my suggestion in the press, however.

cjbilly

Ok - sorry one last question and this may have been already answered (I'm being v.lazy) - where did you get the following from;

- [investment in shares for child] 4k limit for each parent = 8k
- [saving in ctf] 2k limit for each parent = 4k but if 50:50 then combined = 16k... ?

ReportInvestor

It's not an absolute limit and - sorry for the confusion - just refers to investments held for a child outside a CTF.

£2K in savings @ 5% income = £100pa income = the Revenue's top limit before it's taxable at the parent's top rate of income tax.
£4K in shares @ 2.5% dividend income = £100pa income = the Revenue's top limit.

But you could increase the amount in shares to keep under the limit by reducing the dividend yield to invest in shares with more growth prospects.

Reducing the yield is not something you would ever choose to do on a savings account .

cjbilly

Great - got it... thanks for clearing that up.

I appreciate the help - can be a little confusing if you're coming in to this fresh. Thanks.