Confused with investment trusts, stocks, shares..etc.

MiddyMum

jimjames wrote: »

A bare trust is a special legal way of holding savings and investments - a wrapper as it were.

An investment trust and unit trusts are investments in their own right that invest your money into a variety of companies depending on their specified theme or investment areas - eg UK, USA, China etc.

To complicate things more you could hold unit trusts or investment trusts or even cash inside a bare trust.

As a wrapper a bare trust is similar to an ISA - it only holds something inside it, it isn't an actual investment itself.

Thank you, can you add money reguarly to a bare trust or does it have to be a lump sum. I hear that with an investment trust, it is better to invest in 'equities', are you able to explain that simply to me. From looking at the Aberdeen website, I am going to go with that one instead of Hargreaves Lansdown. The whole thing has made me realise I definitely cannot afford to have more than one child :rotfl::rotfl:

xylophone

You were saying that you do not wish your child to have access at 18 - assets held in a bare trust become available to the child at 18 at the latest.

There are also the tax considerations as previously explained.

Have you considered using your own ISA allowance?

MiddyMum

xylophone wrote: »

You were saying that you do not wish your child to have access at 18 - assets held in a bare trust become available to the child at 18 at the latest.

There are also the tax considerations as previously explained.

Have you considered using your own ISA allowance?

I have changed my mind on this one....

xylophone

Then if you are investing for your child outside a tax privileged scheme like the CTF be aware of the "£100 rule".
http://www.hmrc.gov.uk/individuals/savings-income.htm

MiddyMum

xylophone wrote: »

Then if you are investing for your child outside a tax privileged scheme like the CTF be aware of the "£100 rule".
http://www.hmrc.gov.uk/individuals/savings-income.htm

Thank you, I appreciate I sound silly but can you explain what this is please...I am a normal rate tax payer by the way.

jimjames

MiddyMum wrote: »

Thank you, can you add money reguarly to a bare trust or does it have to be a lump sum. I hear that with an investment trust, it is better to invest in 'equities', are you able to explain that simply to me. From looking at the Aberdeen website, I am going to go with that one instead of Hargreaves Lansdown. The whole thing has made me realise I definitely cannot afford to have more than one child :rotfl::rotfl:

Equities are another name for shares, part of a company that you own. Investment trusts in the main would only hold equities so not sure what else you are considering investing in?

If the underlying investments in the bare trust allow additional money to be added then I can't see any reason why you couldn't do regular investments - but it is the underlying investment not the wrapper that determines it.

MiddyMum

jimjames wrote: »

Equities are another name for shares, part of a company that you own. Investment trusts in the main would only hold equities so not sure what else you are considering investing in?

If the underlying investments in the bare trust allow additional money to be added then I can't see any reason why you couldn't do regular investments - but it is the underlying investment not the wrapper that determines it.

Ok, this clears this up (the terms confuse me)...now in your opinion do you feel that I should speak to an independent financial advisor on what shares to invest in? How do you pick, since there are so many? Apart from the type of company, how do you differentiate between them? With an investment trust, do they pick them for you?

Thank you for being so patient.

xylophone

explain what this is please.

It is explained in the link
"Be careful

There are special rules if the savings (including units in unit trusts and shares in open-ended investment companies) have been given by a parent. If gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is normally taxed as that parent’s income. A child cannot get back any tax on that income. Nor can interest paying accounts be registered to have interest paid without tax taken off."

One thing about the link - it does not clearly explain the difference between mere designation and holding units in "bare trust"

http://www.sit.co.uk/products/investing_for_children/features/questions_and_answers/

Where a parent puts capital into a designated account, the units are owned by and taxed as the parent's.

Where a parent puts capital into a bare trust, the units are owned by the child but where the income is over £100 a year is taxed as the parent's.

There is little difference in practical terms where income is dividends and the parent is a 20% taxpayer - tax cannot be reclaimed on dividends by non-taxpayers.

However, where a parent becomes a higher rate tax payer, there will be more tax to pay.

Where an investment pays interest. a non-taxpayer could normally reclaim this but where a parent has provided the capital, and it is over £100 this cannot be done. The same considerations apply if the parent becomes a higher rate tax payer.

If you are content for your child to have the income at 18, why not use the S&S option within the CTF and save trouble?

MiddyMum

Xylophone, I already have a CTF for my daughter so I am not sure I can mess about with it...

The one she has does well though, because she has a lot more in there than I have contributed. I just want something different on top..

I don't know how I will get my head round all this though..:(

xylophone

so I am not sure I can mess about with it...

You could just add to it? https://www.gov.uk/child-trust-funds/managing-the-account