Bare trust / Junior ISA ?

Biggles

Scenario:- Two grandchildren, for each of whom I want to put away a couple of thousand (with more to follow in future years, no doubt) in an equity-based investment until their 18th birthdays and with protection against having to pay CGT when they cash in.

One grandchild is born here to British parents who are resident. The other, though born here to British citizens, will soon be returning with her parents to Africa, where they presently live and work.

I was ready to go for a bare trust, with myself and a parent as trustees. However, the HMRC website (http://www.hmrc.gov.uk/trusts/cgt/calculating.htm#5) says that the annual exempt amount for a trust is £5,300 and, if the person who creates the trust sets up more than one trust, the annual exempt amount has to be divided by the number of trusts. There being one more (at least!) grandchild on the way, this leaves an allowance of under £1,800, so if they retain the same investment trust till age 18 and then cash in, the gains would be almost wholly taxed.

Plus another section mentions that CGT is payable ‘if trustees cease to be resident in the UK’, which will happen in a couple of weeks.

This leaves Junior ISAs, but it is the parent that has to open such an account, and this is likely to prove difficult for an overseas resident.

Any suggestions or alternatives appreciated.

xylophone

http://www.hmrc.gov.uk/trusts/types/bare.htm#3
See this re BARE TRUSTS
Bare trusts and Capital Gains Tax
Capital Gains Tax is a tax on the gain in the value of assets such as shares, land or buildings. A trust may have to pay Capital Gains Tax if assets are sold, given away or exchanged (disposed of) and they’ve gone up in value since being put into trust. The trust will only have to pay the tax if the assets have increased in value above a certain allowance. This allowance is known as the 'annual exempt amount'. The assets of a bare trust are treated for tax purposes as if the beneficiary holds the trust assets in their own name. In a bare trust the beneficiary pays the tax as if they owned the assets directly.
If you're the beneficiary you must declare any chargeable gains on your personal Self Assessment tax return.
http://www.hmrc.gov.uk/rates/cgt.htm

See also
http://www.direct.gov.uk/en/moneytaxandbenefits/managingmoney/planningyourpersonalfinances/dg_10013916

Re JISA http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/SavingsAndInvestments/ISAsandJuniorISAs/DG_199672
"If your child moves abroad, you can still add money to their Junior ISA."

Check whether the existing grandchildren are eligible for JISA or CTF. (child was born between 1 September 2002 and 2 January 2011)
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ChildBenefitandChildTrustFund/ChildTrustFund/AnintroductiontotheChildTrustFund/DG_193690 "You or your child go abroad
If you, or your child, move abroad, the account will remain open. Anyone can still add money to the account, even from abroad. Check with the account provider how you can do this."

Example of investment trust bare trust http://www.sit.co.uk/products/investing_for_children/features/questions_and_answers/

Biggles

xylophone wrote: »

http://www.hmrc.gov.uk/trusts/types/bare.htm#3

The assets of a bare trust are treated for tax purposes as if the beneficiary holds the trust assets in their own name. In a bare trust the beneficiary pays the tax as if they owned the assets directly.

Yes, that was the arrangement I was originally expecting. I think was misled by HMRC's site, I followed the link under 'Bare trusts and Capital Gains Tax' and that took me to 'Trusts and Capital Gains Tax' and thence to the link I posted. In other words, their only specific reference to the exempt amount was the figure of £5,300. But it's looking much more promising.

And the Scottish Investment Trust link is particularly interesting, as it specifies that the donor and the trustees must be UK residents. I'll have to work on that.

Many thanks.

xylophone

And the Scottish Investment Trust link is particularly interesting, as it specifies that the donor and the trustees must be UK residents. I'll have to work on that

.

You and your wife/your sibling/the children's uncle/aunt?
Incidentally, a word to the wise- if you are not confident about setting up trusts, I cannot too strongly urge you to take advice from a solicitor who is an expert in wills and trusts, particularly if large sums will be involved.