Saving/Investing for Children

mcooke999

Hopefully this will be a simple one!
What are the implications around using a HL Junior Fund & Share account to save towards my child's future?

I understand that as a parent, they can only earn £100 income before being taxed, however, I'm unsure how this affects them because I plan to put the money into accumulation units of a Vanguard LifeStrategy fund for them (monthly contributions)?

Also, how does capital gains tax work for children? I don't plan on selling anything until they want to buy a house, so that's approx 20+ years time?

The reason I ask is that I don't want to use a JISA because I don't want them to automatically have the money at 18, I want to choose when I give it them which will be for a house deposit whenever that may be. 
I currently use my own ISA to save for them but with another child on the way I am trying to keep things separate.

xylophone

I understand that as a parent, they can only earn £100 income before being taxed, however, I'm unsure how this affects them because I plan to put the money into accumulation units of a Vanguard LifeStrategy fund for them (monthly contributions)?

 Income that’s ‘rolled up’ into your accumulation units is known as a ‘notional distribution’ and is taxable in the same way as the distributions from income units.

The Junior Investment Account appears to be designed to be held in bare trust.

https://www.hl.co.uk/investment-services/investing-for-children/junior-investment-account

If it is held in bare trust for the child, then the child will have the absolute right to call for access and control at the age of 18.

If you are providing the capital to invest for your unmarried minor child, then the £100 rule applies.

https://www.hl.co.uk/investment-services/investing-for-children/minimising-tax

If you regard your ISA as earmarked for gifts to your children and are not investing more than £20,000 per tax year, why do you need another account?

mcooke999

Thank you for your explanation Xylophone...
I suppose the reason is that I want to keep things fair and equal for both children and but I can only have one VLS80 fund in my ISA? I could just buy a different but similar fund for the new baby I guess?

There must be other parents thinking along the same lines as me? I.e.: want to invest for child but want to keep it a surprise past their 18th birthday ? 

xylophone

But if you intend to make discretionary gifts from your own ISA, you can only afford to give from whatever is in there at the time you want to make the gift?
Just increase the amount you are contributing to the ISA to take account of the new child?

Notepad_Phil

I'd stay away from non-ISA type accounts as otherwise you'll need to keep well on top of all the investments and their purchase/selling prices for cgt and all the income they bring in regardless of whether they are accumulate or income funds.

We found it much easier to keep the money we put away for our children in mine and my wife's ISAs. We didn't have any specific funds allocated to an individual, but instead just put in the money into the range of funds which we then split out evenly. The problem with putting money aside individually into funds in their names is that because you are investing at different times then it can result in quite different amounts of money being distributed out.

mcooke999

Okay I think I will stay away from a non-isa account then. I need something I can 'set & forget'.

My only issue with using my own ISA is that ideally, I want to be able to invest in the same fund for both children but keep each child's money separate. This way, when a family member give one of them money, it will go to them (obviously both children will hopefully receive very similar amounts over the years lol). 

Also, I'll be giving each child the money at completely different times when they each buy a house.

Maybe I'm over thinking it, I could just look for two index funds from different providers so the performance is similar for each.

Our first Born's money is currently in the VLS80 Accumulation fund. Again, I would have probably used the VLS100 but I was using it for my own money at the time!

bowlhead99

In your position if you are ruling out JISA because you want greater control / flexibility, and the amounts you are going to contribute between your children plus the amount you want to put in for yourself is under £20k a year, it probably makes sense to just stick it all in your own JISA.

If the £20k capacity is not enough and the children have another parent, you might find the easiest thing is for parent A to hold child 1's investment within their ISA wrapper and parent B to hold child 2's investment within theirs.

If you want them to have the exact same product and it is going to be in  just one ISA account, then an option is to buy one of them the ACC version and the other the INC version and then once a year when the dividend comes around, reinvest it.   Alternatively put all the money into the ACC version and just know in your head that x% of it belongs to child 1 and y% to child 2. 

mcooke999

Thanks Bowlhead99, I had thought of that ACC & INC units of the same fund. I think it sounds like using my own ISA is the best option at the moment.

I do think it's a bit of a shame though that you can't invest in your child's name but choose when  to give it them, I suppose it stops people unfairly withholding money from their children though. 

xylophone

This way, when a family member give one of them money, it will go to them (obviously both children will hopefully receive very similar amounts over the years lol). 

If gifts have been made specifically to the child, then the money belongs to the child and should not be in an account in your name.

Surely it would be better to open a JISA for these gifts and confine your ISA savings to your own money from which you can choose to make gifts or not.

cloud_dog

OP, I did something similar for my nephews.  At the start I (obviously) didn't know how many there would be so I used just one fund and allocated (in essence) an equal slice to each them (as more started to pop up).  I did this via my own general investment account, and managed any CGT considerations periodically (it really wasn't that big an undertaking).  I used Investment Trusts but in your situation (and borrowing from Bowlhead), you could invest in your own GIA in the ACC version and when you need to sell to realise any CGT considerations buy the INC version as soon as funds are realised.  You could always switch back to the ACC if  you wanted to after 30 days. 

Regarding allocation, I had a rough £ monetary value I was looking to achieve and for the first one to reach 18 I sold X number of shares to equate to that value.  For all the subsequent nephews reaching 18 I will use the number of shares for the first nephew as the yerd stick for the remaining.  That way they should all end up with an equivalent amount even through they will have been realised at different times. 

mcooke999

xylophone said:

This way, when a family member give one of them money, it will go to them (obviously both children will hopefully receive very similar amounts over the years lol). 

If gifts have been made specifically to the child, then the money belongs to the child and should not be in an account in your name.

Surely it would be better to open a JISA for these gifts and confine your ISA savings to your own money from which you can choose to make gifts or not.

I've never actually thought about it like that to be honest but you're probably right! He's only 2 y/o now so any gifts thus far (i.e.: when he was born or christening etc.) have always been given on the understanding they are put towards his future so I've always just bundled it in with our monthly contributions as parents which is for the same goal... Perhaps I'll set up a JISA for any future gifts as you say.