Designated Investment Account

Hitting

I wish to use my annual IHT Gift allowance of £3000 for my Grandchild by buying a Unit Trust in my name but Designated to my Grandchild.Since the investment is in my name can it immediately become outside my estate by virtue of me declaring it as Designated?

I do not want to consider the alternative of a JISA.

DiamondLil

I have designated accounts for my own grandchildren and, as far as I'm aware, these will form part of my estate as they are in my name and under my control.
For me, it's just a way of earmarking funds for the grandchildren (and stating this in my will) and getting invested early in their lives.

Reaper

"Designated" doesn't mean anything much. It is still your money and will be taxed as such. You can change you mind and not hand it over if you want.

To avoid IHT you need to either gift it to the child directly using your annual allowance or use a Bare Trust. A Bare Trust might be a good option in this case. The money becomes the child's immediately but they are unable to access it until they reach age 18. Until then a couple of trustees handle any investment decisions.

With a Bare Trust you can gift beyond the annual allowance if you want, in which case it could fall under IHT on a sliding scale until it escapes completely 7 years after the money has been put in.

bowlhead99

DiamondLil wrote: »

I have designated accounts for my own grandchildren and, as far as I'm aware, these will form part of my estate as they are in my name and under my control.
For me, it's just a way of earmarking funds for the grandchildren (and stating this in my will) and getting invested early in their lives.

Exactly, that's what "designating" the money is ; you're marking it to show what you plan to do with it later.

But only when you actually do something with it later, does the taxman say, ok, *now* you've done something with it, that's a gift worth £x, and you've made that gift on [whatever that future date is, when you hand it over]. Obviously at that point it might be worth £5000 and not £3000 like it's worth today, so if you gave it away at that point you'd need to do it in two separate annual chunks, if staying under the £3000 is important.

To have it immediately out of your estate right now, if you don't want to use a Jisa, you need to put it in what is called a Bare Trust. You can be the trustee of the trust and make all the decisions while the child is a minor. But all the income and gains are theirs, not yours, and if they want to take control over it at 18, they can, because it belongs to them and not you (which is why it would count as a gift with effect from the day you set it up).

A number of fund managers or investment trust companies will help you create a Bare Trust with their standard paperwork. Just Google a bunch of keywords like "bare trust versus designated account investment child" (without the quotes) and you'll see discussion or links.

xylophone

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

"A Bare trust
For inheritance tax purposes, setting up a bare trust creates a potentially exempt transfer (PET). In this case, if the donor lives for seven years after making the transfer, it is no longer subject to Inheritance Tax. If the donor dies before the seven year period is completed the funds could be subject to Inheritance Tax if the estate exceeds the nil rate band, (for 2013/2014 and 2014/2015 this is £325,000, or up to £650,000 if a late spouse's or civil partner's unused threshold can be transferred) but as a 'PET' they are taxed on a sliding scale.

It may be possible to obtain exemption from Inheritance Tax if regular gifts, ie monthly investments, are made to the bare trust and it can be shown that these gifts are 'normal expenditure out of income' and that they do not reduce the donor's normal standard of living.

Gifts to the bare trust up to a total value of £3,000 each tax year, plus any part of the previous tax year's £3,000 that has not been used, may also be exempt (provided no other gifts have been made by the donor which uses the exemption).

Designated plan
The above is also the case for a designated plan if, and with effect from, the time that the fund is gifted to the child in the future."

Hitting

Does a Bare Trust need to be set up officially through a Solicitor?

I notice one Investment platform simply provide a bare trust form but with no reference to the investment, which doesn't seem legally binding.

Are you able to state an investment house that have something more legal in the form of a Bare a Trust?

xylophone

http://www.hmrc.gov.uk/trusts/types/bare.htm

http://www.lawdonut.co.uk/law/personal-law/trusts-for-children-and-other-family-members-faqs#5

Are you able to state an investment house that have something more legal in the form of a Bare a Trust?

The form, once signed, sets up the bare trust. From example above


Q How do I set up a bare trust?

"A Complete the STOCKPLAN: A Flying Start application form and the bare trust form and send to our Administrator.

Investors should advise HM Revenue and Customs (HMRC) that a bare trust has been established. Further guidance can be obtained from the HMRC website https://www.hmrc.gov.uk/trusts/index.htm or your local tax office."

Reaper

Hitting wrote: »

I notice one Investment platform simply provide a bare trust form but with no reference to the investment, which doesn't seem legally binding.

You don't have to name the specific investment fund otherwise you wouldn't be able to switch it. Investment Trusts are well organised for Bare Trusts. Most will set it up for free and you can then choose from their range of funds and switch between them whenever you want. Examples are Foreign & Colonial, Baillie Gifford and Witan, and there are plenty more.

Hitting

It all seems complicated!
I don't want to use JISA.
All I want to do is Gift £3k (annual IHT allowance) to my Grandchild,but I want to do this by purchasing a Unit Trust(s) but keeping outside my estate!
How do I do this?
I thought making the Unit Trust designated to Grandchild and at same time linking this to Bare Trust did the job, but how is this done in practice?
How do I ensure the £3k referred to in the Bare Trust is related to the Unit Trust?
The bare trust would have Donor/trustee,a further Trustee and Benificiary,whereas the Unit trust would have Owner(Donor)and Designation(Benificiary).

DiamondLil

I don't know if this is still possible, but many years ago I started Private Investor Plans with F&C; each plan was held in joint names with one of my children. If this is still possible, presumably at least half of the funds would fall outside your estate

colsten

Hitting wrote: »

I don't want to use JISA.

Why not? It would make the investment tax free for your grandchild.