Help with childs investment please

rachelww1

My son has just inherited just over £50k. He is 8, and I have to hold the funds until he is 18, as per the will. I have been into the nationwide today and discussed investing in low risk funds through legal and general. At the moment his money is sitting in my name on his behalf in a 90 day savers account at 2.2%. Obviously I want his money to earn as much as possible, but as it's not mine I don't wan't to lose his capital. I have 10 years to invest it. What would you do??

xylophone

http://www.hmrc.gov.uk/tdsi/children.htm
If you are holding deposit accounts you should hold them in bare trust in his name.

Note the above to see what happens about the R85 when the child turns 16 and what needs to be done as you will be trustee until he is 18.

Note also the "10% guidance" on the left of the link should this become relevant at any point - remember to use tax allowances current at the time.


As you are looking at a ten year time frame, you could look at holding the money in bare trust in OEICS or investment trusts.
See example 2 here http://www.fandc.com/new/IT/Default.aspx?id=78401

Should the fund you choose pay interest rather than dividends, the tax on the interest would be reclaimable while the child remains a non/10% taxpayer. http://www.hmrc.gov.uk/individuals/savings-income.htm

Remember that the value of stock market based holdings go up and down- you may not get back what you invested. However, if you stick to deposit accounts, there is an inflation risk and as you have found, rates on deposit are not brilliant.

You might consider holding a fixed rate bond as bare trustee. Check that the institution allows the account to be held Mrs x re Master X.http://www.thisismoney.co.uk/money/saving/article-1621507/Best-saving-rates-Fixed-rate-bonds--accounts.html

It is important that it is clear that the account is held in bare trust - this means that the child owns capital and income absolutely and has the right to assume control at his majority.
https://www.hl.co.uk/free-guides/investing-for-children2

rachelww1

I found it really difficult to invest the money as it was written out to him. I have the same amount for my 15 year old but I am holding this in my name re him in a bond as an investment wasn't advisable for 3 years. I am seeing a solicitor this week. I asked about bare trusts but this was the best any bank/building society could do. I already have a R85 in place for both of them. I don't want them to know they have the money coming to them until they reach 18.

xylophone

If you hold the accounts "re" as in http://www.hmrc.gov.uk/tdsi/children.htm, you may well find that the BS contacts the child at age 16 because of what happens then re R85.
http://www.hmrc.gov.uk/trusts/types/index.htm this explains types of trust but I think that you are limited to a bare trust because of the way that the money has been left (without condition other than majority - you do not appear to have any "discretion" in the matter).

The solicitor can advise on trusts but may well not on investment.
If you are unsure you would need to seek the advice of an IFA and pay for it? http://www.unbiased.co.uk/

You might be best advised to read through the guide on investing for children before you see your professional advisers so that you have any idea about what questions you would like to ask.

mania112

As you've seen above, risk is unavoidable.

Deposit accounts carry (among others) Default and Inflation risks.

Investment accounts carry more obvious risks.

Perhaps you'll be better off with low risk investment funds in an OEIC/Investment Trust - a 10yr term would normally be expected to beat inflation.

somethingcorporate

NS&I savings certificates would be worth considering when they open back up.

They provide a rate of RPI (or CPI I forget) + a small % (the last issue was 1%). So guarantees to beat inflation.

atush

With a ten year horizon, I would invest the money rather than save it in cash- a min of 50% of it (but I would invest the whole lot in investment trusts dripfeeding in).