Saving for children, Savings or ISAs, please advise!

PlasticMan_2

Hello,

I have two children and want to open two savings accounts, one for each of them. Ideally I want two identical accounts to keep things simple. I want them in my and my wife's names to stop the kids from blowing the money on something silly as soon as they're eighteen, and we don't need quick access to the money (although we don't want it locked away years in advance just in case). There will be multiple monthly deposits throughout the year.

But of course we want to get a decent rate.

Now I've never had an ISA, so it seems like it would make sense to take advantage of the tax benefits of ISAs at this point. But the whole thing seems really confusing.

If I want to go down the ISA route, I assume I can't open an account for each child as I want to (only one provider per year)? If I do go for ISAs would I be best off getting a new ISA each year? And transferring the money? I don't want multiple accounts. Maybe I could get one ISA this year and one savings account and get a new ISA next year (for the other child, transferring the savings account balance into it) to make them the same. Can I then make deposits into each ISA account and they both have continued tax benefits (on all the new deposits as well)?

Or should I just get two savings accounts and forget about ISAs to keep it simple? I just want to be able to give two accout numbers to the grandparents (one for each child) and let them make deposits as and when, either regularly or on birthdays etc.

Please can someone who knows more about ISAs offer some advice? I'd be most grateful.

Thanks.

xylophone

If the money is given to the children, even if held in bare trust, they have an absolute right to access and control at the age of 18 (16 in Scotland). http://bank.virginmoney.com/savings/learn/childrens-accounts/ may be worth a look.

If your child is eligible ( born before 1 September 2002 or after 2 January 2011) he can have a JISA but he is entitled to control at age 16 and access at age 18.
https://www.gov.uk/junior-individual-savings-accounts/overview

A child under 16 cannot have an adult ISA - at the age of 16 he can, but the money is his absolutely and is under his control. http://www.hmrc.gov.uk/isa/faqs.htm#12
£100 rule only applies to money given by parents outside a tax privileged account like the JISA.

jimjames

An ISA is just a tax wrapper round a savings account. If you are paying tax and not currently using ISAs for your savings then it would be worth looking into them.

Bear in mind the advice above, you could also keep the savings in your name so you can decide when you want to hand the money over but it will then be considered your asset if you ever need to apply for benefits or allowances.

atush

Why not invest the money instead of putting it in savings accts that don't beat inflation?

I invested for all 3 of mine in RE: acct with an investment trust savings plan. Invested monthly small amts, and then used the money once they reached 18-21 (for university expenses mostly). I have control of it, they can't spend it.

Had a cash acct for them too, for Bday/pocket money/gifts and they got access to that age 18.

xylophone

Money given to your children is their money and should not be placed in your account.

If you want to set aside money for your child, you/your wife can regard your own isas as "earmarked" to be used for your children at some point of your choosing.

Here is some information about saving in an IT and the difference between Re (designated) and bare trust. http://www.sit.co.uk/products/investing_for_children/features/how_to/

PlasticMan_2

Thanks to you all for the replies. I think I have my answer from the "Full ISA Guide" thread, but to address a couple of your points.

If the money is given to the children, even if held in bare trust, they have an absolute right to access and control at the age of 18

Money given to your children is their money and should not be placed in your account.

If I am the one doing the giving, then I figure I can decide when I am going to give it, and similarly, the grandparents are more than happy to put the money in a shared account belonging to me and my wife for us to pass it on to the kids when they are 18, potentially after discussions with said kids about how it might be used. That's why I said the accounts would need to be in my name.

True story. I have a good friend who I met at uni. He inherited £20,000 in his first year. He dropped off the course shortly afterwards, had blown the lot within about three years and ended up living in his car (which he'd bought brand new and which was losing value very fast).

If you are paying tax and not currently using ISAs for your savings then it would be worth looking into them.

Why not invest the money instead of putting it in savings accts that don't beat inflation?

I've never had occasion to use an ISA before because I've been paying off debts (which are now gone!) so I don't really have savings. And similarly I have no experience of investing. Like everyone I want a good rate, but the value of investments can go both ways and I don't want the kids to get to eighteen and discover the money's been wasted on bad investments. I will look into this further.

It turns out the main crux of my question was really this, can I continue to deposit into two ISAs simultaneously, to which the answer appears to be a resounding no. This is fair enough (although the main ISA Guide is less than clear on the point).

But it means that ISAs won't work for my purposes unless my wife and I open one each for the kids, which is an option (unless we have more kids ).

xylophone

If I am the one doing the giving, then I figure I can decide when I am going to give it,

Indeed - you were simply being given information about the difference between your putting money aside which you regard as earmarked for your children one day and saving into an account (even in bare trust) in the name of your child.

You will also have noted the £100 rule in respect of money given by parents (but not others, including grandparents).

In my opinion it makes life easier if money given to children by parents is kept separate from that given by other people.

Another point regarding money held in your name/your wife's name (including that which will be given to you for your children by the grandparents) - this will be regarded for income tax, inheritance tax (and should you ever be in the position to need them )means tested benefits as your/your wife's income, estate, savings etc - the children would have no automatic right to the money even if (especially in the case of gifts by grandparents) it was actually theirs.

This might require thought.

PlasticMan_2

xylophone wrote: »

Indeed - you were simply being given information about the difference...

Of course, and I appreciate the information. Apologies if my tone seemed a little abrupt, that was entirely unintentional.

xylophone wrote: »

You will also have noted the £100 rule in respect of money given by parents (but not others, including grandparents).

Yes, I noticed this on the virgin money link you sent (thank you). But to be honest this just seems to complicate matters further and require some of the money to be in the child's name. One savings account/ISA per child in mine (or my wife's) name is enough for me and I'm not totally convinced the benefits of complicating things further are worth it.

xylophone wrote: »

Another point regarding money held in your name/your wife's name (including that which will be given to you for your children by the grandparents) - this will be regarded for income tax, inheritance tax (and should you ever be in the position to need them )means tested benefits as your/your wife's income, estate, savings etc

Not sure how savings would qualify as income, and our income/assets are unlikely to be huge either way so I'm not too worried about this?

xylophone wrote: »

the children would have no automatic right to the money even if (especially in the case of gifts by grandparents) it was actually theirs.

Sorry, lost you here. You mean even if the account was in their name? Would they not automatically get access when they turn 18?

atush

OK, so you yourself have no savings and don't know about investing- fair enough.

In your case, before you save for the kids, you need to save for yourselves. Congrats on clearing your debts! For an emergency pot, to pay for replacement white goods and other unexpected things (even redundancy) so that you don't go back into debt. Then address investments for yourselves. Use Cash ISas in yours and your husband's names for this emergency pot as tax payers.

Money for the kids from the grandparents, can be invested now in re:accts for them, and you can save in alongside once you have built your safety pot. You choose a good general or income investment trust, which is a collective investment and holds shares in lots of different companies (some in different countries) this means you don't need to do a lot of research nor worry about diversification as the trust is diversified itself.

One of you can open a re acct or S&S ISA witht he kids investments, the other could open one for you both (after you have saved that emergency pot.

And yes, if you retain control via a re:acct, then the money is beneficially yours, and could be taken into acct in case of means tested benefits (or seized by courts under a judgement) unlike money in the kid's name that would be beneficially theirs at 18.

xylophone

Not sure how savings would qualify as income, and our income/assets are unlikely to be huge either way so I'm not too worried about this?

You will note that I said

income, estate, savings etc

- perhaps I should have added "as appropriate/as the case might be."

If an account is in your name and not held in bare trust, the money is regarded as yours.

So, any income arising is regarded as and taxed as yours.
Similarly, the capital in the account is regarded as yours.
Were you to die, the money in any accounts in your name falls to be dealt with for IHT as your estate.

If you as a parent put money into your minor unmarried child's account (outside a tax privileged scheme like JISA) and income over £100 is received by the child on the funds deposited, while both capital and income belong absolutely to the child and he has the right to call for access and control at 18 (16 in Scotland), the income will be taxed as yours (unless he is married). http://www.hmrc.gov.uk/manuals/saimmanual/saim2430.htm

If some of the money in the account has been provided by other than parents then an apportionment has to be done to settle tax liability.

Sorry, lost you here. You mean even if the account was in their name? Would they not automatically get access when they turn 18?

You were talking about opening an account in your/your wife's name which you would regard as your child's and into which money for the child from the grandchild would be placed?

If this is the case then the money is in your account and is regarded as your money (as above).
If an account is held in the child's name and held in bare trust then yes, he has the right to access and control at the legal age of majority,18 in England and 16 in Scotland.