Grandparents gifts and investing for children

healthcareunprofessional

I have a couple of thousand pounds that were given to my 2 year old by his grandparents. The tax rules say the money earned on this can be his so there would be no point sticking this is an ISA if I could get a better return in a straightforward savings account.

However, this is long term / university money I would like to invest in stocks or units trust, whatever seems sensible, but will still like the option to access it on his behalf (such as investing in "bricks and mortar" - i.e. use temporarily as a house deposit).

There is more money that we have given to him as parents which the tax rules will count as my earnings anyway - this seems most sensible to put in a stocks and shares NISA at the moment.

As a bare trust or junior ISA will lock it away until he is 18, is there anyway of investing this in his name so that the earnings are taxed as his alone? E.g. do you get this benefit with a "Designated Plan" - it seems unclear and you certainly wouldn't get inheritance tax benefits.

Drp8713

I don't think what you want exists.


You basically want a bare trust/JISA that you can dip into. The whole point of having it in the child's name is that it is theirs and people don't dip into it.


I think a S&S JISA is the best option for the long term. What type of property are you going to get with a £2K deposit anyway? I'd be lucky to get a shed in London for that.

healthcareunprofessional

Not to "dip into" the fund - just retain an option to use it if needed given things are a little fluid at present but a JISA means it CANNOT be used for the next 16 years.
As we are still in rental investing that money in his own roof (if we needed it when we pool the families resources) seems a legitimate use of the gift especially as the house prices seem to keep rising. I just don't want to give HMRC more than they are entitled to.
Looking at Hareave Lansdowen (sorry not allowed to post links) suggests that Bare Trusts may allow us to do what we want - aim to put it aside until university age but be able use it for something else if neccesary.

Drp8713

Once its in a bare trust the assets belong wholly to the child, so I don't think you can then withdraw it and use it for a mortgage deposit in your name. If you do I assume HMRC will have something to say about it.


Maybe somebody else with a bare trust who has made withdrawals can clarify? I have one for my son but I wouldn't think about taking anything out. Its his 18th birthday present!

In_For_A_Penny_2

I had thought that a bare trust allowed for withdrawals for the "benefit of the child". In practice I'm not sure how you prove this but a mortgage in your own name might be stretching it.

healthcareunprofessional

If for a house would be a fractional purchase for the trust fund (if feasible - appropriate advice to be taken) but this is getting off topic.
If I left the money in a savings account in sons name then am allowed for him to own money and be interest to be counted as his interest BECAUSE grandparents gave it. How do I get this to work for shares-type investments?

kidmugsy

see p50.
http://www.theaic.co.uk/sites/default/files/statistics/attachment/AICStats30Jun14.pdf

xylophone

If the money has been given to your child, then it belongs to him absolutely whoever has given it to him - it is just that the tax treatment is different if the money has been given by a parent.

It is true that money in a bare trust ( or indeed in other types of trust) can be used for the direct benefit of the child - in my opinion, using his money to buy your house, even though he would be living in it, doesn't seem to fit within the spirit of the rules.

healthcareunprofessional

Thanks kidmugsy - a really useful link.

But as the tax is treated differently I would not need to pay the fees of a NISA wrapper for this sum if I didn't need to, meaning the investment should make better gains. I am a higher rate taxpayer so a chunk of the dividends are at risk to the tax man.

Looking at what I am trying to do I think just using the money for a kids regular saver account may be better for the sums involved.

I think there will be a NISA in my name for the rest of the money to shield the dividends that would otherwise end up on my tax-return. I can't see a benefit in a children's investment plan unless you have already maxed your own personal ISA allowance.