£10k to invest for new baby

Midas

Thanks to an exceedingly generous Grandparent, when my first child enters the world next month I will have £10k to invest on its behalf. I want to invest it for the long-term (for at least 18 years). I don't expect that we will be in a position to add to this fund over the next few years.

I'd be grateful for any thoughts on how best this money should be invested for long term growth. Given the baby won't be a taxpayer, is there any particular advantage to a Junior ISA? Should I perhaps be looking at an investment trust, or stick with unit trusts (whether in an ISA wrapper or not). Or should I potentially even look at putting a portion of the money into a pension?

Thanks in advance for your thoughts!

Flobberchops

Wow, that's a nice problem to have! As you say, exceedingly generous.

A Junior ISA can take £4128 per year so you'd have to feed the sum in over two-and-a-bit years (4 now, 4 in April 2018, and the remaining 2 in April 2019) but my hunch is that's the correct thing to do. A Stocks and Shares JISA is almost certainly the best bet but if you like the security of cash you might consider splitting the annual allowance between cash and investments. Children do pay tax by the way, although they'd have to be really quite high net worth for that to come into play. Still, future-proofing their savings with an ISA is a smart move.

elephantrosie

may i ask if the money is invested in non-ISA platforms, how do you explain to HMRC where the money come from?

xylophone

may i ask if the money is invested in non-ISA platforms, how do you explain to HMRC where the money come from?

The grandparent could write a letter - Dear John and Mary, I enclose a cheque for £10,000 drawn in the name of our new grandchild Henry James.....

xylophone

The parents might initially open a child account for grandpa's cheque, perhaps a Halifax Young Saver.

https://www.halifax.co.uk/savings/accounts/kids/young-saver/

They would then open a JISA (cash/shares/cash and shares) and fund from the young saver.

https://www.gov.uk/junior-individual-savings-accounts

The best cash rate is currently offered by the Coventry BS.

https://www.coventrybuildingsociety.co.uk/consumer/product/savings/children/junior-cash-isa.html

Charles Stanley might suit for stocks and shares - a multi asset fund could fit the bill.

https://www.charles-stanley.co.uk/junior-isas

Or below might be worth a look.

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-junior-isa?cmpgn=PS0517UKPAJIS0002&gclid=EAIaIQobChMIrpHa-e6M2AIVZZPtCh1UIAQlEAAYASAAEgIJGPD_BwE

Sarastro

Why do you need to explain anything to HMRC? It's not income, it's a gift to the child. That said, a covering letter which dates the gift may be useful should the benefactors die within 7 years (sorry to be morbid). They should probably say the gift is jointly from them as that might reduce the IHT liability further; but not sure.

Junior ISA seems like the right thing to do. Meanwhile put the rest in a children's savings account and transfer the lumps in each financial year. It will need to be children's savings account otherwise you will be liable to pay income tax on the interest earned on the account if it is in your name.

Alexland

Did the grandparent have any particular wishes in how the money is to be invested, what risk (if any) would be acceptable, what age it should be accessable or to what purpose it should be used and how much long term parental control there should be?

If not then probably a Junior S&S ISA (my son's is with Orbis Access Global Equity fund which is quite volatile but has delivered excellent results) and good interest cash account in the meantime. Always hold enough in an accessable cash account to pay any IHT liability which reduces over time. Try and bring up the child so you can trust them not to waste the money when they get access to manage and withdraw.

Orbis have a Junior ISA offer to add £100 (which counts towards the annual limit so you can invest £4,028 upto 5th April then up to £4,260 next tax year) and there are no fees on any investments made in the first 12 months until the child is 18.

https://www.orbis.com/uk/individual/isa/jisa/

However you might want to transfer to Vanguard at age 10 to start derisking the portfolio possibility using the Target Retirement 2035 fund if the child is likely to withdraw it all between 18 and 21 for uni etc. Don't worry about the phrase 'retirement' the fund just reduces volatility and risk as a target withdrawal date approaches so is suitable for other purposes.

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-junior-isa

https://www.vanguardinvestor.co.uk/investing-explained/what-are-target-retirement-funds

Alex

elephantrosie

because some people invest/ save under their partners'/ children names.

would not it trigger questions from HMRC if it was a large amount, like in this scenario?

Makkusu

elephantrosie wrote: »

because some people invest/ save under their partners'/ children names.

would not it trigger questions from HMRC if it was a large amount, like in this scenario?

The straight answer is, no.

As generous as it is, £10k is a very very small sum to be gifted in HMRC's eyes. With that also in mind, gifting is legal, so again, don't worry.

IanSt

How old/wealthy are the grandparents and are you thinking of having other kids?

Is there a chance that if you did have other children that they may not be so fortunate to receive such a generous and sizeable gift?

Is there anything in particular that the grandparents are thinking this money will eventually be used for?

Imagining the scenario where I am a bit older and in the position of being able to gift such a sum to a grandchild then I'd possibly think of gifting the money to the parent so that the money could be invested and split with any further children that came along should I no longer be around. I'd also be potentially thinking that the parent would have a more balanced view of money then an 18 year old who suddenly gets a big sum of money if invested/saved in the child's name.

So it might be something for you/the grandparent to think about.

Midas

Many thanks everyone for the very useful and informative replies. It sounds like a stocks and shares JISA is the right route. I currently have a bit of money invested myself with H&L, but it sounds like Orbis, Vanguard and Charles Stanley are all worth investigating further.