How best to save for my Irish grandchildren?

geoff2

I have 5 grandchildren, 2 of whom are Irish nationals, resident in Ireland. We want to make regular monthly savings for them but we can't use a Junior ISA and their mother cannot have an ISA because (we've been told), whilst British, with a NI number, she is not resident here. There are no similar accounts to ISAs in Ireland. I asked Fidelity about this and they recommended a general investment account which I could put in trust for the children. Presumably this would be subject to tax. Therefore, could I not do the same with an ISA in my name, put in trust? Or does anyone know of a better solution?

AnotherJoe

If you aren’t using your ISA allowance or there’s enough spare for the children, it’s probably simpler to save under your own name in a single ISA with the intention that you distribute the money to the children when you deem it the right time. And in your will give instructions as to how the money from that ISA should be distributed should you die before you do that.

That also has the benefit that you can time the distribution to the children when you want in the way you want, and that with one single overall amount there’s no danger that one child’s investments will be any different to any others (should you wish that to be the case)

If you already use up your ISA allowance then open up a general investment account and from time to time as necessary sell and buy in order to keep within CGT limits.

I don’t see any need to put in Trust, that just seems too complicated for little gain.

AnotherJoe

p.s. I also suspect a trust might be too inflexible, for things that seemed OK at the time but maybe not later. Suppose you deem one child more, or less, deserving, or needing the money earlier or later than you initially planned.

If in effect its your own money (eg its in your own ISA in your name) you can do with it what you want when you want without being stuck with whatever a trust directed you to do.

geoff2

AnotherJoe - many thanks for your helpful advice. I have plenty of spare ISA allowance to put to use. That begs the question as to how I should invest the money. Given that the children are only aged 2 and 9 months, I'm minded to invest in stocks and bonds rather than cash, as it will have plenty of time to grow. Perhaps a global tracker of some kind and an investment-grade bond fund for a bit of stability. Any other suggestions welcome!

AnotherJoe

For my granddaughter, where there's about a 15-20 year investment horizon, I've invested 100% in funds, specifically the Legal & General International Index Trust. (Class C - Accumulation ). Its a very low cost global fund.

Note there are no UK investments in this fund that's why i chose it, my rationale being, if the UK does badly, that fund is a better place to be thana UK biased fund, OTOH if the UK does well, that will mean my GD will have good job prospects etc so thats good, and anyway the UK wont do well in a world economy that isn't doing well, so the fund will still do well, just perhaps a smidgeon less well than it might, all balanced by her living and working in a good economy.

I dont see any need or benefit over that timescale for stability by adding bonds but if you are more cautious than me (and most people are, and thats not necessarily a bad thing ) I can see why you'd do that. I wouldn't even consider cash.

bowlhead99

geoff2 wrote: »

their mother cannot have an ISA because (we've been told), whilst British, with a NI number, she is not resident here.

You've been told correctly - as their mother is not UK resident and doesn't have any liability to UK income tax or capital gains tax, the UK tax authority is not going to give her a special account that allows her to shelter cash or investments from UK income tax or capital gains tax. It would be pointless. And even if she was allowed a UK ISA to protect the cash or investments from UK tax, it wouldn't stop them being subject to Irish tax when she took the income back to Ireland.

they recommended a general investment account which I could put in trust for the children. Presumably this would be subject to tax.

Yes, a relatively simple thing to do is for you to be the trustee of a 'bare trust' for each of the children. The money belongs to them absolutely from the moment you put it in the trust account (rather than belonging to you any more) - you would just be the controller of the account but not the owner. It's their money and they can demand it handed over at age 18. Because of that, you are right, the income and gains from the cash or investments in the trust account would be taxable on the child as if they held them directly.

As young children they presumably don't have much other income so may be within their personal allowance each year with nothing to pay to the irish tax authorities on the income generated by the cash or investments which are sitting in the trust. But assuming you are using investments rather than simple cash deposits, they might be exposed to tax on the capital gains realised in the account when the investments are periodically sold (because the annual CGT exemption limits are much lower in Ireland than they are here, as well as the % rate being higher). So the children may have some tax bills - either while going along through the investment journey, or at the end.

Therefore, could I not do the same with an ISA in my name, put in trust?

You can't put an ISA in trust. The name stands for Individual Savings Account and it is you as an individual who has the allowances to subscribe to it and get the tax benefits from it.

Or does anyone know of a better solution?

As Joe said above it can make a lot of sense to keep it as your own over the years for maximum flexibility - and just deal with the UK taxes within your own rates and allowances.

You mentioned at the start "We want to...". So does that mean there's you and a partner / spouse? If so you have ISA contribution allowances of £40,000 per year between you to put money into tax advantaged investment accounts that can be accessed any time. Or £80,000 (subject to your annual earnings) to put into personal pensions, accessible from your late 50s. Both of these offer a way of putting money away for the long term with tax advantages to enable you to have the wealth to make a bigger gift later.

Another way of doing it , depending on the amounts involved, is to not even bother with doing it through a tax wrapper, and just have a general investment account in your own name rather than in trust for the kids. The dividend income, interest and capital gains would be taxable - but might easily fall within your annual allowances. For example if you and your other half are doing most of your saving and investment inside ISAs or pensions, you might not be using all (or any) your annual dividend allowances, personal savings allowances, and annual capital gains exemptions.

So you (or two of you?) could set up a general investment account with fidelity or whomever else and *not* put it in trust and still find the total tax each year was pretty much nil until you decide they're old enough for cash to be gifted to them in the amount and times you decide. As such, even if you don't have space in your own ISAs to run an investment program just for the irish grandchildren, you still might be able to have it all in your name without much tax worries. But the disadvantage is that you have to keep records for tax to prove it, whereas with ISAs you don't.

- -
Just one point to mention on timing of gifting it to them (into bare trust) each month / each year, rather than keeping the money as your own (in ISA, pension or general investment account).

In Ireland they have a gift/ inheritance tax regime, known as Capital Acquisitions Tax. As irish residents, your grandchildren can receive a total threshold amount of gifts over their lifetime from various different groups of people, before they have to pay tax on the excess. The group of family containing their brothers, sisters, their own future children, and their grandparents, can only give them (currently) about Eur 32k over the lifetime before they pay tax on future gifts and inheritances (at a rate that's currently 33%). They have a separate threshold for money they get from their parents.

So if you keep the money building up in an ISA or general account in your own name until it reaches (say) 10k, it will take a big chunk out of that limit. You might find their other grandparents have also given them a substantial gift and the limit gets used up, giving them tax exposure on all future big gifts and inheritances from their grandparents and siblings and children.

That sounds quite a punitive regime but it is only designed to cover inheritances and large gifts. They can take advantage of the small gifts exemption of Eur 3k a year per gifter - such amounts don't count towards the lifetime allowance.

So instead of building up (say) £50 per month for 18 years in your own name and giving them a gift at the end of a fat pile of cash, which with investment growth ends up being€ 20k and takes a big bite out of their lifetime allowance for their group of close relatives; you could instead give them £50 a month into the bare trust which officially 'belongs to them' even if you are still controlling it. Then they are only receiving a 'small gift' of £600 per year with nothing to ever declare and their entire 'capital acquisitions tax threshold' untouched.

- -
So, the choices you have include:

- giving it to them in small amounts dripped over time (but still trapped in a trust that you control) so that they don't need to worry about gift tax from getting it in one big lump - but they do have exposure to irish personal tax on income or gains generated in it; or

- giving it to them in one big gift (or series of gifts) at the end after you have invested the money in your own name and built the balance up using your own personal tax wrappers and tax allowances, so they don't have to worry about any tax as the gains are made - but then you will inevitably use up some of their capital aquisitions (gift/inheritance) tax allowance which might cost them some tax eventually.

bowlhead99

As for what to invest in, a global fund (including shares of companies all over the world in all countries in the developed world and the emerging markets too) makes sense. There is no real point looking for one with a high bias to UK companies as they do not live in the UK anyway and you don't know where in the world they will eventually choose to live when they grow up.

The only 'problem' with the fund AnotherJoe suggested is that although it's an international index fund it does not include emerging markets such as China, India, Russia, Brazil, South Africa etc etc etc and such markets are likely to produce a lot of growth over the decades to come. So I would get an 'all world' index rather than a 'developed world' index. Something like Vanguard's Global All Cap tracker would be fine.

I wouldn't bother about adding bonds for a toddler or baby. They can add some 'stability' at the cost of long term returns. If you are investing monthly, the vast majority of the investments will be made in future years rather than this year so there is no problem if the market swings up or down randomly over the next few years and any slight gains that you could make by 'rebalancing' from bonds to equities during an equity slump in the next few years will not have much impact in the grand scheme of things.

Once you are five to ten years into the investing plan and there is only a decade or so left before you plan to hand it over, and a decent amount already invested, you could consider adding bonds or other non-equities to be diversified and reduce potential volatility.

AnotherJoe

bowlhead99 wrote: »

As for what to invest in, a global fund (including shares of companies all over the world in all countries in the developed world and the emerging markets too) makes sense. There is no real point looking for one with a high bias to UK companies as they do not live in the UK anyway and you don't know where in the world they will eventually choose to live when they grow up.

The only 'problem' with the fund AnotherJoe suggested is that although it's an international index fund it does not include emerging markets such as China, India, Russia, Brazil, South Africa etc etc etc and such markets are likely to produce a lot of growth over the decades to come. So I would get an 'all world' index rather than a 'developed world' index. Something like Vanguard's Global All Cap tracker would be fine.

Ah I didnt know that thanks, may re-examine my choice or add an EM fund.

bowlhead99

AnotherJoe wrote: »

Ah I didnt know that thanks, may re-examine my choice or add an EM fund.

Yes, it follows FTSE World (ex UK) rather than FTSE All-World.

Similar problem if you went with MSCI World instead of MSCI AWCI (all countries world index).

Not sure I agree with the idea of cutting out UK on the basis that'if UK does great my granddaughter will be happy anyway'. That's no reason to decide you don't want shares in global brands such as BP or Glaxo or Unilever or software companies like Sage or media companies like Sky or whatever. Seems a strange approach. And I don't suppose it translates to OP whose grandchildren are not in the UK anyway so will not necessarily benefit if UK gets stronger.

As an FYI, this is the Global All Cap fund that I was meaning. http://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-accumulation-shares

It's not available on every platform but Vanguard have it on their own. Its advantages over the fund Joe first mentioned are - it includes emerging markets, it includes the UK (no reason to overweight it, but no reason to exclude it) and it includes some smaller companies. The index it's tracking covers 7000+ companies representing $50 trillion of stockmarket value. I would keep it simple and just buy that, then come back in 2025 and see what people recommend for the last decade of the investing journey.

If that particular fund is unavailable, OP could just get something similar. Of course, if they are investment savvy and have their own portfolio they could look at mirroring that or at least using the high-growth elements of it.

Goes without saying that I agree with the advice to go for investments rather than cash for at least the first decade of an 18 year drip feed because inflation will halve the real-terms value of £100 over a couple of decades and it's important to seek growth to counteract that.

xylophone

Below may suit for a regular monthly investment for each child.

https://www.bailliegifford.com/en/uk/individual-investors/literature-library/individualintermediary-non-fund/investment-trust/childrens-savings-plan-application-pack

P 7 gives information about difference between bare trust and "designated".

ValiantSon

If you do decide to go with the Vanguard fund (or another Vanguard product), then it would make sense to use Vanguard's own platform as their fees are lower than you will get anywhere else, at 0.15% (no trading costs, no set-up, and no exit fees).