Withdrawing from a childs bare trust and moving to an ISA in parents name.

skipfeeney

Hi All,
About 5 years ago I setup two bare trust investment accounts for my two children with Hargreaves Lansdown.  I invested in each one monthly.  We now have a third child and I need to do something similar.  However I have realised that having these three accounts and paying into each one monthly is costing me a fair chunk in fees (£1.50 a month per account for the investment) plus yearly fees and also a bit of a hassle to maintain 2/3 accounts. 

I am wanting to move them into a single ISA, I have not used my ISA allowance this year so I would like to put it in my name.  The fees will be a lot less (1 as opposed to 3) and it will be easier to maintain.  Then when they are 18 I can split the ISA three ways.  

However the rules for Bare trusts are that any "withdrawals should be for the benefit of the child".  Will my plan fall foul of this rule?  
Thanks

Reaper

Yes. The money put into the Bare Trust was irrevocably gifted to the child at that point. It is no longer your money and as trustees it is your legal duty to make sure it is only used for the benefit of the child until they are old enough to manage it themselves. Moving it to an account in your name would clearly breach that duty. However you could transfer it to another provider or to 3 Junior ISAs if that works out any cheaper.

skipfeeney

Ok thanks.  I think I will have to bite the bullet and setup the third account then and look for somewhere with lower fees.  I thought as much.  Thanks for your help

xylophone

Have you filled your children's JISAs?

skipfeeney

xylophone said:

Have you filled your children's JISAs?

No - I have tended to shy away from these.  I do like to retain a little bit of control.  I am generally saving for university fees.

xylophone

I do like to retain a little bit of control.

You do realise that your children have the absolute right to access and control of funds in a bare trust at the age of 18 (16 in Scotland)?

https://www.gov.uk/trusts-taxes/types-of-trust

Bare trusts

Assets in a bare trust are held in the name of a trustee. However, the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over (in England and Wales), or 16 or over (in Scotland). This means the assets set aside by the settlor will always go directly to the intended beneficiary.

And are you aware of the £100 rule? This does not apply to funds given by parents to a JISA/CTF

The income arising on a parental settlement is taxable on the (parent) settlor, subject to a GBP100 per annum de minimis limit. Once the GBP100 limit is passed, the entire income is taxable on the parent at whatever rate the income would have been charged if it had actually been their income. This will cover:

• payments of income made to each child under the trust or settlement;
• payments of capital made to each child, to the extent that they can be matched against any available undistributed income;
• amounts applied for the benefit of each child (where the payment is made to someone other than the child but for their benefit, for example payment of school fees).

Bare trusts for minor children

Although a bare trust is not a trust for IHT purposes, it may nonetheless give rise to a parental settlement for income tax and fall within s629(1)(b), in which case the income tax treatment outlined above will apply. This could arise from a simple parental gift made, for example, when opening a building society account in the child’s name.

There are, however, CGT advantages in using a bare trust for a minor: because the child is absolutely entitled to the assets, a bare trust is not a settlement for CGT. Any gains that arise are therefore treated as the child’s gains, to be set against his or her personal annual exemption (GBP10,100 in 2010/11).

Bare trusts created by parents for minor children may therefore have a limited use for holding low-income-producing assets, which may give rise to gains within their annual exempt amounts. 

jimjames

skipfeeney said:

Ok thanks.  I think I will have to bite the bullet and setup the third account then and look for somewhere with lower fees.  I thought as much.  Thanks for your help

There is another option you've not mentioned.

The money already there will need to stay as per previous links but there is no reason why new money has to be added. So you could easily avoid the £1.50 monthly fees and just leave the existing there but new money into an ISA in your name so you don't need to setup a third account. 

skipfeeney

xylophone said:

I do like to retain a little bit of control.

You do realise that your children have the absolute right to access and control of funds in a bare trust at the age of 18 (16 in Scotland)?

https://www.gov.uk/trusts-taxes/types-of-trust

Bare trusts

Assets in a bare trust are held in the name of a trustee. However, the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over (in England and Wales), or 16 or over (in Scotland). This means the assets set aside by the settlor will always go directly to the intended beneficiary.

And are you aware of the £100 rule? This does not apply to funds given by parents to a JISA/CTF

The income arising on a parental settlement is taxable on the (parent) settlor, subject to a GBP100 per annum de minimis limit. Once the GBP100 limit is passed, the entire income is taxable on the parent at whatever rate the income would have been charged if it had actually been their income. This will cover:

• payments of income made to each child under the trust or settlement;
• payments of capital made to each child, to the extent that they can be matched against any available undistributed income;
• amounts applied for the benefit of each child (where the payment is made to someone other than the child but for their benefit, for example payment of school fees).

Bare trusts for minor children

Although a bare trust is not a trust for IHT purposes, it may nonetheless give rise to a parental settlement for income tax and fall within s629(1)(b), in which case the income tax treatment outlined above will apply. This could arise from a simple parental gift made, for example, when opening a building society account in the child’s name.

There are, however, CGT advantages in using a bare trust for a minor: because the child is absolutely entitled to the assets, a bare trust is not a settlement for CGT. Any gains that arise are therefore treated as the child’s gains, to be set against his or her personal annual exemption (GBP10,100 in 2010/11).

Bare trusts created by parents for minor children may therefore have a limited use for holding low-income-producing assets, which may give rise to gains within their annual exempt amounts. 

 Sorry Xylophone - I am not understanding what is meant by The income arising on a parental settlement?
Can you you explain how it will affect me? I am basically paying monthly into an Investment trust for them  - SMT to be exact.  The accounts were actually setup with Baillie Gifford directly but they closed them and they got transferred to HL.  I am only paying in a small amount  -£30 a month. I am not looking to withdraw until they are 18.

ratechaser

I think a key point to remember is that YOU will not be withdrawing anything when they are 18... the money will be the children's to do what they wish with...

skipfeeney

ratechaser said:

I think a key point to remember is that YOU will not be withdrawing anything when they are 18... the money will be the children's to do what they wish with...

That is a key point - I think I need to look again at what I can do.  It is really for university costs, they could say you aren't using this money I guess.  In which case a JISA will be no good either.  

ratechaser

skipfeeney said:

ratechaser said:

I think a key point to remember is that YOU will not be withdrawing anything when they are 18... the money will be the children's to do what they wish with...

That is a key point - I think I need to look again at what I can do.  It is really for university costs, they could say you aren't using this money I guess.  In which case a JISA will be no good either.  

My children will be in control of sizeable sums at age 18, mix of JISAs and inheritance money. Whilst there are no guarantees, my hope is that they will take the advice that we have offered them, and which they have asked for, and not just blow the lot irresponsibly... they seem to appreciate the value of financial stability and are keen to own their own homes in time. They realise that they are fortunate to be in a position where they have a good starting point with their savings.

Getting in early with some basic financial education is always a good move... but they have to be allowed to make their own mistakes as well, and learn from them. I certainly did...