Investing 100k for children

bostonerimus

So just put the money into an investing account set up as a bare trust. If the money is not coming from the parent there is a big tax free allowance. Could money be then transferred from the trust each year into a junior ISA....it is being used for the benefit of the child?

dunstonh

Could money be then transferred from the trust each year into a junior ISA....it is being used for the benefit of the child?

Junior ISA cant be held in trust. So, to use the Junior ISA, it would require the money to be drawn out of the trust. In most cases, that would be not allowed (although money may be allowed to be drawn to pay for things for the child and with a bit of jiggery pokery you could do it in a roundabout way as long as the audit trail did not make it appear obvious what you have done). Although that maybe totally unnecessary if an offshore bond was used and segments assigned when the time is due. Again, it depends on the trust rules. However, many use the trust money to pay for university fees. You can assign a portion of the offshore bond to the child to cover that years costs. They have their £11k a year personal allowance and they can draw enough of the capital and gain to use up the £11k allowance tax free.

bostonerimus

dunstonh wrote: »

Junior ISA cant be held in trust. So, to use the Junior ISA, it would require the money to be drawn out of the trust. In most cases, that would be not allowed (although money may be allowed to be drawn to pay for things for the child and with a bit of jiggery pokery you could do it in a roundabout way as long as the audit trail did not make it appear obvious what you have done). Although that maybe totally unnecessary if an offshore bond was used and segments assigned when the time is due. Again, it depends on the trust rules. However, many use the trust money to pay for university fees. You can assign a portion of the offshore bond to the child to cover that years costs. They have their £11k a year personal allowance and they can draw enough of the capital and gain to use up the £11k allowance tax free.

The child's personal allowance should cover tax on income generated inside the trust, but it would also be nice to use the child's yearly JISA allowance. If money can be withdrawn by the trustee to pay for things that directly benefit the child like school fees (although in as much as that reduces the amount the parents pay from their own income it seems to benefit the trustee too which smells like a conflict of interest) then withdrawals to fund a child's JISA would seem pretty defensible as purely for the child's benefit. Using the child's personal allowance should avoid capital gains tax. Then at 18 the JISA becomes a nice ISA and the "child" might then tax efficiently drip feed from the trust into the ISA.

Iif the trust can be used to pay school fees then the parents could use the money they save from their own income to fund the JISA, but what about people that don't have school fees, what other expenses can the trust be used to pay for?

Piggy-bank_2

DiggerUK wrote: »

It seems that the children have inherited without a will being present, and Piggy-bank has trustee status......Piggy-bank will hopefully give more details....

Sorry, my phone died last night before I had chance to clarify.

Their other parent has died without leaving a will. The 100k each will come from the estate, so I understand that has to be held "in trust". The 5k a year each comes from a dependants pension, which is intended to help financially support a child until 18, so as far as I understand can probably be used a bit more flexibly tho I anticipate most will be saved alongside the inheritance.

They already have junior ISAs, being filled by money from elsewhere & that will probably continue. Their other savings accounts have a max holding (or at least on which interest is paid) of 50k, so there's still quite a chunk to find a good home (not house!) for.

Thanks for all replies as it helps to identify possible pitfalls etc that I need to consider.

bostonerimus

Piggy-bank wrote: »

Sorry, my phone died last night before I had chance to clarify.

Their other parent has died without leaving a will. The 100k each will come from the estate, so I understand that has to be held "in trust". The 5k a year each comes from a dependants pension, which is intended to help financially support a child until 18, so as far as I understand can probably be used a bit more flexibly tho I anticipate most will be saved alongside the inheritance.

They already have junior ISAs, being filled by money from elsewhere & that will probably continue. Their other savings accounts have a max holding (or at least on which interest is paid) of 50k, so there's still quite a chunk to find a good home (not house!) for.

Thanks for all replies as it helps to identify possible pitfalls etc that I need to consider.

So the bottomline here is you need to make sure if because the money comes from a deceased parent then any income/gains from it within a bare trust are taxed as the child's income and also how to make sure the money gets put in trust correctly with you as trustee.

jimjames

DiggerUK wrote: »

Weasel words. Junior SIPP's do exist. http://www.hl.co.uk/pensions/vantage-junior-sipp
So do Junior ISA's http://www.moneysavingexpert.com/savings/junior-isa

bostonerimus, never mentioned formal trusts, neither has Piggy-bank. Most parents just hold money for their children. We did it for ours, mostly in our name legally, with our children's name somewhere on the a/c., usually nothing more than "for the benefit of"
Our grandkids have similar pots set up by their parents.
As the responsible adult, Piggy-bank does not have to set up formal trusts involving expensive fees with financial advisors..._

Maybe Digger you need to accept that you don't know everything and outside the world of gold you need to look beyond. I'd not understood the OP but obviously those versed in these matters had so it might be handy to acknowledge that fact rather than suggesting it is weasel words

Dead_keen

You could set up an LLP to buy the property or properties. The kids would be members (partners) along with you. They have limited liability. The LLP enters into contracts (so you can sign on behalf of the LLP).

By investing in property their money is (roughly) hedged with property prices for when they buy their own.

The LLP is transparent for tax purposes and so their share of the profits can be used against their personal allowances. When they get to the stage when they need the cash, the LLP can sell the property. Or it can be transferred to them free of tax (including free of stamp duty).

It costs something like £25 to set up an LLP but you might want to have a think about what the LLP agreement says and you may want to take some legal advice on what you'd want as a minimum. You'd need to file an annual return and annual accounts to Companies House, a partnership tax return and tax returns for you and the kids. A little bit of hassle but its pretty easy once you get the hang of it.

By involving them in decisions in the LLP as they get older then they may develop some more business acumen. The profits can be invested in whatever is appropriate (cash, stocks, ISA when they get older, pension, etc).

dunstonh

You could set up an LLP to buy the property or properties. The kids would be members (partners) along with you. They have limited liability. The LLP enters into contracts (so you can sign on behalf of the LLP).

How would that work with the trust?

their share of the profits can be used against their personal allowances.

How does that work with the trust?

Dead_keen

dunstonh wrote: »

How would that work with the trust?

...

How does that work with the trust?

There is no need for a trust. The child can be a partner in the LLP in their own right.

bigadaj

Dead_keen wrote: »

You could set up an LLP to buy the property or properties. The kids would be members (partners) along with you. They have limited liability. The LLP enters into contracts (so you can sign on behalf of the LLP).

By investing in property their money is (roughly) hedged with property prices for when they buy their own.

The LLP is transparent for tax purposes and so their share of the profits can be used against their personal allowances. When they get to the stage when they need the cash, the LLP can sell the property. Or it can be transferred to them free of tax (including free of stamp duty).

It costs something like £25 to set up an LLP but you might want to have a think about what the LLP agreement says and you may want to take some legal advice on what you'd want as a minimum. You'd need to file an annual return and annual accounts to Companies House, a partnership tax return and tax returns for you and the kids. A little bit of hassle but its pretty easy once you get the hang of it.

By involving them in decisions in the LLP as they get older then they may develop some more business acumen. The profits can be invested in whatever is appropriate (cash, stocks, ISA when they get older, pension, etc).

An odd solution for a thread that started because in common with many, the OP doesn't understand investments and saw property as a safe bet.

And making minors partners of LLPs is very strange even if it's legal.