Best long term investment for child?

Smudger78

Reaper wrote: »

You can acieve all the above with a "discretionary trust" except the lowest operating costs as you will need a solicitor to draw it up.

In my view you are better off compromising on some of the other points instead.

My own choice was Baille Gifford using their Scottish Mortgage fund and the Bare Trust option. The costs are low, performance reasonable, and unlike the others they let you specify the end date you want when setting it up, so I picked age 21 but they assure me as a trustee I can end it sooner if I think my son is responsible enough. However a note of caution that the legal side is unclear and I suspect the child may be able to overturn it in the courts at age 18 if they were determined enough!

You would need to set up another one for future children but it isn't very hard. Just one application form and id.

You can't do it via an ISA. If your child qualified for a CTF then you can do it that way. In my case I went with F&C with most of the money going into their F&C Investment Trust fund which has low charges.
If they can't have a CTF then you can do something similar with the Junior ISA at the end of the year.
The advantage of the CTF/Junior ISA route is that income is not taxed, which it is for a child investment when it exceeds £100pa if it was the parent's money (exempt if it came from other relatives plus capital gains is exempt regardless of who it came from provided you set it up as a Bare Trust). The downside of a CTF and likely the Junior ISA is the charges can be higher.

Thanks for the advice. I've been swaying towards the F&C Childrens Investment Plan as the designating an account option as that seems to offer the control over the timing of handing over the fund to our son. Our son did qualify for the £50 govt CTF funding so we took up the offer and opened a CTF for him. Would it be possible (and would it be a wise thing to do) to use this existing CTF to then fund into the Investment Plan? I presume this would be for tax benefits or am I completely getting the wrong end of the stick?

Also you mentioned above that you have invested in both Baille Gifford and F&C - which one would you say would be better for our purposes?

Reaper

Smudger78 wrote: »

I've been swaying towards the F&C Childrens Investment Plan as the designating an account option as that seems to offer the control over the timing of handing over the fund to our son.

It is very flexible but you need to be aware with that option that as far as the tax man is concerned taking the "Designated" route means the money is still yours so it will be subject to capital gains tax, income tax, and possibly even inheritance tax as if it was your own.

Our son did qualify for the £50 govt CTF funding so we took up the offer and opened a CTF for him. Would it be possible (and would it be a wise thing to do) to use this existing CTF to then fund into the Investment Plan? I presume this would be for tax benefits or am I completely getting the wrong end of the stick?

Yes and I think in your case it would be the simplest option. If you go for the F&C non-stakeholder "shares account" CTF the charges are pretty good too compared to most CTFs which charge an annual 1.5%. If, for example, you picked the F&C Investment Trust fund and got 7% growth one year the effect of the charges would be to reduce that to 6.3% growth which is pretty good as investments go (though be aware some of their other fund choices have higher charges).

Also you mentioned above that you have invested in both Baille Gifford and F&C - which one would you say would be better for our purposes?

I am unable and unqualified to give advice but if it were me I would transfer the CTF to F&C as described above. The Baille Gifford route is best when the money has come from relatives not parents as then if you set it up as a Bare Trust the tax man considers it all the child's money not the parents and as such unlikely to incur any tax. For parents money the CTF is best as everything in it is tax free regardless. You don't even have to declare it on your tax return.

P.S. For completeness I should mention there is also 0.5% stamp duty to pay when buying into Investment Trust companies. That applies to all share purchases.

westy22

It is very flexible but you need to be aware with that option that as far as the tax man is concerned taking the "Designated" route means the money is still yours so it will be subject to capital gains tax, income tax, and possibly even inheritance tax as if it was your own.

The Baille Gifford route is best when the money has come from relatives not parents as then if you set it up as a Bare Trust the tax man considers it all the child's money not the parents and as such unlikely to incur any tax.

So why can't the F&C CIP be set up as a bare trust?

Smudger78

Reaper wrote: »

It is very flexible but you need to be aware with that option that as far as the tax man is concerned taking the "Designated" route means the money is still yours so it will be subject to capital gains tax, income tax, and possibly even inheritance tax as if it was your own.
Yes and I think in your case it would be the simplest option. If you go for the F&C non-stakeholder "shares account" CTF the charges are pretty good too compared to most CTFs which charge an annual 1.5%. If, for example, you picked the F&C Investment Trust fund and got 7% growth one year the effect of the charges would be to reduce that to 6.3% growth which is pretty good as investments go (though be aware some of their other fund choices have higher charges).
I am unable and unqualified to give advice but if it were me I would transfer the CTF to F&C as described above. The Baille Gifford route is best when the money has come from relatives not parents as then if you set it up as a Bare Trust the tax man considers it all the child's money not the parents and as such unlikely to incur any tax. For parents money the CTF is best as everything in it is tax free regardless. You don't even have to declare it on your tax return.

P.S. For completeness I should mention there is also 0.5% stamp duty to pay when buying into Investment Trust companies. That applies to all share purchases.

Ok, so are you suggesting I should transfer the existing CTF to F&C but not use a "designated" account so as to avoid income, inheritance and C&G tax? Also in terms of practicalities - how do I actually "transfer" the CTF when it is with another provider? Where do my "monthly contributions" go - into the CTF and then into the F&C product? Sorry for all the questions but just want to be clear.

I fully accept your not qualified to give formal "advice" but just appreciate the benefit of someone elses experience when they have been down a similar route to one which my research seems to be leading me down.

Thanks

Smudge

Reaper

westy22 wrote: »

So why can't the F&C CIP be set up as a bare trust?

It can. I was illustrating CTf and non-CTF investments using the particular products I chose. You can substitute any Investment Trust company.

Reaper

Smudger78 wrote: »

Ok, so are you suggesting I should transfer the existing CTF to F&C but not use a "designated" account so as to avoid income, inheritance and C&G tax?

No, I was suggesting using a CTF with F&C (the "shares account" variety rather than the stakeholder). You can forget about designated and bare trusts when using a CTF, they don't apply and are not needed. CTFs are a special case where the money is automatically regarded as being the child's regardless of who donated the money and is always free of any additional taxation.

Also in terms of practicalities - how do I actually "transfer" the CTF when it is with another provider? Where do my "monthly contributions" go - into the CTF and then into the F&C product?

While I haven't done it myself I believe it works like an ISA transfer. Just tell the new provider you want to transfer to them and let them sort it out. You will pay the money to F&C (or whoever). You tell them on the application form which funds the money is to be directed to.

Smudger78

Reaper wrote: »

No, I was suggesting using a CTF with F&C (the "shares account" variety rather than the stakeholder). You can forget about designated and bare trusts when using a CTF, they don't apply and are not needed. CTFs are a special case where the money is automatically regarded as being the child's regardless of who donated the money and is always free of any additional taxation.
While I haven't done it myself I believe it works like an ISA transfer. Just tell the new provider you want to transfer to them and let them sort it out. You will pay the money to F&C (or whoever). You tell them on the application form which funds the money is to be directed to.

Ok so I open a "new" CTF (as opposed to using the one we already have with another provider) with F&C (for example) and then use it to fund a "shares account" which I also open with F&C? So i open both a CTF and a shares account? Does this then mean that as it's a CTF my son "automatically" has the right to access the funds when he hits 18?

Thanks

Smudge

Reaper

Smudger78 wrote: »

Ok so I open a "new" CTF (as opposed to using the one we already have with another provider) with F&C (for example)

No. You can only have 1 CTF. You must transfer the existing one.

and then use it to fund a "shares account" which I also open with F&C? So i open both a CTF and a shares account?

No, their Shares Acount is a type of CTF. Read up on it on their web site:
http://www.fandc.com/new/it/Default.aspx?id=95341

Then look on the right hand side of the page where there is a link to "CTF Transfer Form" to arrange moving the CTF from your current provider.

Does this then mean that as it's a CTF my son "automatically" has the right to access the funds when he hits 18?

Yes, all CTFs release the money at 18. As I said before there is no one product which meets all your criteria, you will have to pick which ones are the most important to you.

Smudger78

Reaper wrote: »

No. You can only have 1 CTF. You must transfer the existing one.
No, their Shares Acount is a type of CTF. Read up on it on their web site:

Then look on the right hand side of the page where there is a link to "CTF Transfer Form" to arrange moving the CTF from your current provider.
Yes, all CTFs release the money at 18. As I said before there is no one product which meets all your criteria, you will have to pick which ones are the most important to you.

Hi All,

Since my last post I have gone away to get some IFA but in all honesty I'm not sure I'm any clearer at the moment. If you don't mind I would like to run a few of the things I've been told by you guys to get your views.

I gave the advisor the same parameters as above and below is some initial general advice i've recieved.

Investment vehicle - A unit trust savings plan has been suggested, benefits of pound cost averaging explained and I've also been advised to designate it in my childs name so we have full control of it.

Tax - Advised unit trusts don't attract income tax and at levels we would be investing we would not atract capital gains as we wont reach annual capital gains exemption of £10,100.

Low Operating Costs/Fee's (Verbatim) - Better performing investment funds do tend to be the more expensive ones and would probably result in an annual charge of 1.75% approx. Also the difference between the offer and bid price of units does mean that there is an initial cost of about 5% of the investment.

CTF's - Previous Govt introduced CTF's as low cost alternativ but as providers are limited in their charges veyr few of better performing funds have made themselves available. Advice is to use the CTF to invest theGovt contribution but use a better performing fund for any additional contributions.

Fund Choice - To keep risk at an acceptable level target UK funds only so we dont need to worry about currency fluctuations. Particularly recommends Special Situations and Recorvery funds.

So that's the initial very general advice. If i'm honest I'm not sure where it leaves me, i did mention some of the options and products we have disussed on here but haven't got any specific comments back in this respect.

Any thoughts you all have on the above would be appreciated!


Thanks


Smudge

Smudger78

Smudger78 wrote: »

Hi All,

Since my last post I have gone away to get some IFA but in all honesty I'm not sure I'm any clearer at the moment. If you don't mind I would like to run a few of the things I've been told by you guys to get your views.

I gave the advisor the same parameters as above and below is some initial general advice i've recieved.

Investment vehicle - A unit trust savings plan has been suggested, benefits of pound cost averaging explained and I've also been advised to designate it in my childs name so we have full control of it.

Tax - Advised unit trusts don't attract income tax and at levels we would be investing we would not atract capital gains as we wont reach annual capital gains exemption of £10,100.

Low Operating Costs/Fee's (Verbatim) - Better performing investment funds do tend to be the more expensive ones and would probably result in an annual charge of 1.75% approx. Also the difference between the offer and bid price of units does mean that there is an initial cost of about 5% of the investment.

CTF's - Previous Govt introduced CTF's as low cost alternativ but as providers are limited in their charges veyr few of better performing funds have made themselves available. Advice is to use the CTF to invest theGovt contribution but use a better performing fund for any additional contributions.

Fund Choice - To keep risk at an acceptable level target UK funds only so we dont need to worry about currency fluctuations. Particularly recommends Special Situations and Recorvery funds.

So that's the initial very general advice. If i'm honest I'm not sure where it leaves me, i did mention some of the options and products we have disussed on here but haven't got any specific comments back in this respect.

Any thoughts you all have on the above would be appreciated!


Thanks


Smudge

Anyone?????