Best way to save for a child

RickyC_IFSWP

Hitting wrote: »

Am I correct in thinking it to be IHT exempt?, after 7years.

I don't see why amount is important, it is either exempt or not?

I want this seen in isolation, outside gifts allowed!

Taken in isolation, yes.

Bennifred

From my own experience: I would not save in an account which your child will have access to at age 18. I would keep the savings/investments in your own name. Your child may turn out to be the most sensible, responsible person going, but they may not, and it would be upsetting to see your hard saved money go to waste....

My own three children (now adults) have very different attitudes to money despite being brought up in the same way. One of them I definitely would not have wanted to have free access to a large sum of money at eighteen

RickyC_IFSWP

Bennifred wrote: »

From my own experience: I would not save in an account which your child will have access to at age 18. I would keep the savings/investments in your own name. Your child may turn out to be the most sensible, responsible person going, but they may not, and it would be upsetting to see your hard saved money go to waste....

My own three children (now adults) have very different attitudes to money despite being brought up in the same way. One of them I definitely would not have wanted to have free access to a large sum of money at eighteen

I know what I'd buy if I were 18 again

In all seriousness, if that's a concern, consider using trust arrangements for investments, especially if your estate may grow to exceed the inheritance tax (IHT) threshold. That way you retain control on who gets the money eventually and it will be free from IHT in future.

jimjames

damianjmcgrath wrote: »

OK, that's part of the reason I asked for advice - because I get a bit lost with the savings/investment options. I don't want a high risk plan, because if we pay in £30k over the 17 years, we'd want that to be the minimum, but a few percentage interest would be nice too.

If it gets into the investment side of things, that sounds like we might need a chat with a financial adviser?

This is one option that we use

http://www.invtrusts.co.uk/aam.nsf/InvestmentTrusts/investchildren

Risk is all relative but remember if something drops in price you are then buying more of it with your £150. In most situations you'd think that was a bargain not a disaster and buy more so higher risk can be more suitable for long term savings plans like this where you are buying monthly.

cloud_dog

Hang on a minute there's something wrong in the Universe..... This thread has been going for over 9 hours and Xylophone hasn't come along. Strange indeed.

In the interest of acting as a pseudo Xylophone......

Please be aware that the tax man doesn't like parent hiding money in a childs account and therefore has a rule which means that if the child's account generates more than £100 income pa and the capital has come from the parent(s) then any income will be taxed at the parent(s) highest tax rate.

(Can't find the link atm)

...... and Q Xylophone.....

Eco_Miser

damianjmcgrath wrote: »

OK, that's part of the reason I asked for advice - because I get a bit lost with the savings/investment options. I don't want a high risk plan, because if we pay in £30k over the 17 years, we'd want that to be the minimum, but a few percentage interest would be nice too.

If it gets into the investment side of things, that sounds like we might need a chat with a financial adviser?

Over 17 years the value of most investments will fluctuate, but tend upwards, though there is a risk that the value will be down at the moment you want the money (in which case, if you can wait another year or so, it will come back up). By coincidence, I started investing 17 years ago, and that initial lump sum has doubled, AND paid out the same again in dividends. If I'd reinvested the dividends it would have quadrupled or better thanks to compounding.

By contrast, the value of savings is almost certain to have dropped by 30% over that time, though you might manage to break even if you can keep the money in high interest accounts (unlikely).

If you do consult a financial adviser, make certain it's an independent one, not one from a bank or building society.

xylophone

Has anyone got any advice?

Not advice, just comment.

If a parent puts his own money into his child's own name (outside tax privileged accounts like JISA), and that money earns an income of over £100, then while the capital and income belong to the child, all the income will be taxed at the parent's highest marginal rate.

However, the capital gains tax position is different so that non-income bearing assets might be held in bare trust to take advantage of this. See http://www.hmrc.gov.uk/trusts/types/bare.htm#3

and http://www.step.org/minor-note

Where a parent holds an account in bare trust for a child, he needs to remember that the child has the absolute right to access and control from the age of 18 (16 in Scotland).

A parent may give money to his child within a CTF/JISA without being affected by the £100 rule - once again however, the child has the right to access from the age of 18 (and may choose to administer the account from the age of 16).

With regard to more complex trusts see http://www.hmrc.gov.uk/trusts/types/minors.htm

Where a parent wishes to set money aside for a child but does not wish to be involved with trusts and wishes to control when/if the child has access to the money, he might use a "designated account" - but he needs to remember that the money remains his, is taxed as his, and would be taken into account should he require means tested benefits.

See here http://www.sit.co.uk/products/investing_for_children/features/questions_and_answers/ and here http://www.bgchildsavings.com/pages/how_to_invest.aspx

Speculator

If the parent giving the money is a non taxpayer, (earning less than£10K) can she continiue to register the child for gross interest if the amount of interest earnt is over £100 or will she need to reclaim the tax?

xylophone wrote: »

Not advice, just comment.

If a parent puts his own money into his child's own name (outside tax privileged accounts like JISA), and that money earns an income of over £100, then while the capital and income belong to the child, all the income will be taxed at the parent's highest marginal rate.

joninstjohn

Although it is a fairly trivial amount, one thing I have done for my daughter is open a Co-op bank Bonus Saver and stuck £50 in it. The interest rate is paltry at 0.2% but every year they give her £2 up to the age of 12 so that's 4.2%. Between the ages 13-18 they pay a £10 bonus per year that's a whopping 20.2% return as long as you keep the minimum £50 in the account.

Other things I do, she has a child trust fund with family investments, a tax-free with-profits endowment with Sheffield Friendly, a UK tracker pension with Virgin (she's 4) and £1200 in Funding Circle which is returning 7.4%. Her slush money is kept in Lloyds who are paying a reasonable (for the times) 3%.

xylophone

If the parent giving the money is a non taxpayer, (earning less than£10K) can she continiue to register the child for gross interest if the amount of interest earnt is over £100 or will she need to reclaim the tax?

The rule is that if the interest arising from a parental gift is over £100, then all that income will be taxed on the parent at the parent's highest marginal rate.

http://www.money.co.uk/article/1007483-gifting-money-to-your-children-faqs.htm

In one way, it would seem logical to say that if a parent had made a gift to a child which produced gross income of over £100 (so that the whole was taxed on the parent), but that parent's income (including the income arising on the child's account), was within that parent's tax free allowance, then to the extent that the parent could complete R85 for her own accounts, she could do so for the child.

http://www.hmrc.gov.uk/taxon/bank.htm

But it would seem that HMRC might not be content with this - see for example http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/individuals/savings-income.htm

I can find nothing on the HMRC web site which covers this situation so you would need to raise the query with HMRC.