Investing 60k for 2 kids

fergee

Hi guys,
I currently have 2 children and have invested 30k for each child in a bond that matures in 2 weeks time. At the time of investment the bond was paying 4% and seemed ok but the returns now are very poor and I'm looking for alternative ways to invest for them. My children are 14 and 12 and I have thought about a junior ISA but don't want to give my kids control at 18 as the whole purpose is for a mortgage or Uni (not for partying and seeing the word):rotfl:
I don't mind tying it up for a few years but as its for my kids I don't want anything mega risky and it will have to be in their names due to me using up all my own tax free allowances. Thanks in advance..

xylophone

Have you had regard to the £100 rule?

See here under Things you might like to know http://bank.virginmoney.com/savings/learn/childrens-accounts/

bowlhead99

fergee wrote: »

My children are 14 and 12 and I have thought about a junior ISA but don't want to give my kids control at 18

It will have to be in their names due to me using up all my own tax free allowances.

Those two quotes don't really work together. If you want to use their tax allowances it has to be in their name or in your name as bare trustee for them. Either of those methods, the account/assets belong to them and can be controlled by them once legally old enough. Of course, if you don't tell them about it and hide the statements they might not find out until later.

If you're a lower rate taxpayer you won't have any extra tax to pay on dividend income so don't necessarily even need to put it in a tax free wrapper on equity based investments. If higher rate, you are exposed to much heavier taxes than the child and so you really need to use their allowance. Maybe that means putting half in their name so they get it the summer before Uni (and you tell them they have to pay 3 years of living costs with it), and have half in your own name which you pay tax on but have the advantage of being able to release when they are a couple of years after they graduate.

Perhaps the bit which they can control at 18 could be inconveniently put in a 3-year bond at age 17.95 with huge withdrawal penalties and you will be able to educate them not to touch it...

Mega Risky means different things to different people. If I said I didn't want a mega risky investment for 10k it would mean I should avoid putting all of it in one single biotech company as I can't afford to lose 95% of it. However I would invest in an emerging market or single country fund which could gain or lose 65% in a short time period before recovering (volatile, risky, but not Mega Risky). Whereas if my father said he doesn't want anything mega risky, he would probably mean he doesn't want to risk losing more than 10% of the initial principal because he would be upset at not having the 30k available on a specific date.

A 30,000 house deposit now earning 2% interest for 10 years is about 36.5k or 35k after basic rate tax. Will 35k be worth as much, in 2023 money (when kids are 22 and 24), as the 30k is today and will it buy the same % house deposit? If you think not, you would perhaps need to accept some volatility in order to meet or exceed UK inflation. Again, perhaps having a split pot with some lower risk investment maturing in 3-5 years and medium risk investment intended to be withdrawn in 10 years, could be useful.

fergee

The money was left to them by their grandad when he died so it wasn't gifted by parents. I could just bang it back in a bond but I feel that I should try and maximise their return without jeopardising the money left to them. I know my kids won't blow it at 18 but I think the suggestion of wrapping it up for 2/3 years at age 17 is wise, but any suggestions would be welcome.

xylophone

The money was left to them by their grandad when he died so it wasn't gifted by parents. I

If this was an absolute and unconditional bequest then they have the right to access at 18. You should be holding it in bare trust for each child.

While they are non-taxpayers, you can complete R85 on their behalf but after the 16th birthday of each child, if the money stays in some kind of deposit account, the R85 must be rescinded and any tax overpaid reclaimed by you on R40 until the child reaches the age of 18. At that age, the child has the right to access and control and the account should be transferred into his sole name. If he is a non-taxpayer at that stage, he can reclaim the tax for himself.

It would of course be possible for you to put the money into a five year fixed rate bond shortly before the 16th birthday - the account would still be transferred into the child's name at the age of 18, but he would be bound by the terms of the bond.

You might consider opening a bare trust for each child with the likes of Hargreaves Lansdown who will supply the special form required - you could then hold funds in the name of the child - remember that if you chose funds that paid interest rather than dividends, any tax overpaid would need to be reclaimed on behalf of the child on R40.