Premium bonds for kids

Dallybally

Hi. I've got a reasonable inheritance coming soon and I've looked into all the options and premium bonds are the way I want to go. Wife and I are both higher rate tax payers, we've maxed out isa's etc. I like the idea of not having to worry about the max limit for compensation, we don't need the income and with a big amount in there's a moderate chance of winning big plus it's all tax free. We're highly likely to be better off than savings according to mse calculator.

Once I've maxed out mine and the wife's 50k limit I know I could buy some in kids name, but does anyone know how it works fully? The ns and i website just says they'll send "any prizes won and payment for cashed in Bonds to the nominated parent or guardian until the child is 16."

Does that mean we'd get all the prize money and can choose to cash them in before they turn 16? I'm going to make damn sure the kids are looked after from this, but I wouldn't trust most 16 year olds with £1000's.

I can't find any more info anywhere, does anyone know anything? Don't want to phone the helpline as we would be cheating system a bit by using the kids names.

Thanks a lot.

Flobberchops

Can't answer your main question off the top of my head, but had you looked at NS&I's 5 year kid's bonds as an alternative way of putting aside some or all of the money? It would also earn a guaranteed rate of interest that's higher than PB's 1.35% average.

[edit] Just checked and it's pretty clear-cut that bonds held in a child's name, and any prizes they generate, are the property of the assigned adult until the child is 16. See the "Buying for Children" section on NS&I's Premium Bond page. Ditto for the 2.5% 5-year bonds. So, while it's possibly a bit unscrupulous to use these products to store your own cash (if I understood your post correctly), there seems to be nothing stopping a person from doing exactly that.

Dallybally

Hi. Do you mean the bit I quoted above "We’ll send the Bond record, any prizes won and payment for cashed in Bonds to the nominated parent or guardian until the child is 16."?

It does seem to imply that we can do what we want with it, but it doesn't say if there is anything about checks for abusing the system. I've got 4 kids, would they really let me put 200k in their names until the day they turn 16 then I take it all back? I've not got 200k but the principal is the same. If the kids win a million can I really just take it?

Cheers.

Flobberchops

That's certainly what it sounds like, yes. Kid's savings seem to fall into one of two categories, either the nominated adult retains full control (meaning unscrupulous parents could avoid paying tax on their savings, and often at a preferential rate) or else the money is locked away and becomes the child's property at 18 (meaning little Timmy could theoretically spend his University fund on loose women and cocaine). Neither way is free from potential abuses, it comes down to what kind of arrangement you feel is best. NS&I operates on the former model, i.e. the money is controlled by you in every way (including withdrawals) until the child is 16.

So, yeah, as far as I can see you could put away an extra 200k of your own money in your children's names (plus another 12k in children's bonds), and if one of your kids' allocated bonds won the million it'd be legally yours.

Dallybally

Thanks a lot. I'll try and sign up and see what happens. I'll post back here when one of the, win a million. Not holding breath.

xylophone

It is clear that the bonds are a gift to the child and therefore belong to the child as does any prize money.

http://www.nsandi.com/premium-bonds

"Premium Bonds can make a special gift for your child or (great) grandchild.

Until the child’s 16th birthday the parent or guardian nominated on the application looks after the Bonds, regardless of who buys them."

http://www.thisismoney.co.uk/money/experts/article-2193046/Can-I-22k-Premium-Bonds-I-bought-estranged-son.html

"When Bonds are purchased for a child they do legally belong to the child. The responsible parent is only authorised to manage them on behalf of the child while he is under 16."

Dallybally

It still says the parent has control until the kids 16 though. So if I chose to manage them by cashing them in and giving the money to an account in my name when they are under 16 I presume that's ok? Technically I will use a big chunk of the money for when the kid is older to help with a deposit on a house, but only when I deem them to be responsible enough which could well be in their 20's, or if they are like I was their age 30's.....

xylophone

The bonds and any prize money do not belong to you but to your children and should therefore, it seems to me, be paid into an account in the sole name of the child who owns the bond.

Money in an account in your sole name belongs to you. Any interest arising will be taxed as yours.

Should you die, the money falls into your estate and will be taxed as such.

Should you gift the money when your child is an adult, there will be IHT considerations.

janed9388

Your post just made me look into this (again) as my daughter is currently looking after some bonds for me pending building a house extension this year and I had a sudden panic I had mis-understood. When you log into your NS&I account you can see your childs account under your name and then manage it appropriately. add to, withdraw from etc.
Any withdrawals from the childs account go back into your "nominated account" and then you can move them on as you see fit, I think you'll need to do this before they hit 16 though or you'll have to hand over control to them.

hope this helps.

eskbanker

Dallybally wrote: »

with a big amount in there's a moderate chance of winning big

I think you misspelt 'minute' there....

Dallybally

Not that I've got too much time on my hands or anything, but.... According to the MSE calculator £50k of bonds over 5 years has 9633/1 chance of winning the million. If you divide that by 3 as I could have 3 lots of 50K, that's 1 in 3000 chance of winning a million. If you take it up to 10 years (using my dodgy calculations as the MSE calc only goes to 5) I make it 1 in just over 1000. Not great granted, but better than the lottery.

Not only that, there are other big prizes, I make it roughly 1 in 300 chance of £100k, 1 in 130 of £50K, 1 in 20 of £10k. Factoring in the fact I'm virtually guaranteed to earn more than in a savings account (again according to MSE calc) as I'm a higher rate taxpayer and I like the idea.