Investing for children - taxation

moneytroll

Is there a way to invest in shares using your children's personal allowance for dividend income? (going beyond Junior ISAs)

I am confused about various account/trust types and he taxation aspects: 

I just read that there is such a thing as "parental settlement" for Bare trusts which seems to mean that the income is taxed as if it was the parent's income (what is then the benefit of a bare trust?). Then there is such a thing as a "designated Dealing account" (AJ Bell I think offers it). But it is not clear what the taxation would be.

Does anyone know of any tax-efficient options? 

Dazed_and_C0nfused

moneytroll said:

Is there a way to invest in shares using your children's personal allowance for dividend income? (going beyond Junior ISAs)

I am confused about various account/trust types and he taxation aspects: 

I just read that there is such a thing as "parental settlement" for Bare trusts which seems to mean that the income is taxed as if it was the parent's income (what is then the benefit of a bare trust?). Then there is such a thing as a "designated Dealing account" (AJ Bell I think offers it). But it is not clear what the taxation would be.

Does anyone know of any tax-efficient options? 

Given that the dividend nil rate band (aka Dividend Allowance) can only be used once the Personal Allowance has been used could you clarify what income this child has that is using their Personal Allowance 🤔

moneytroll

Dazed_and_C0nfused said:

moneytroll said:

Is there a way to invest in shares using your children's personal allowance for dividend income? (going beyond Junior ISAs)

I am confused about various account/trust types and he taxation aspects: 

I just read that there is such a thing as "parental settlement" for Bare trusts which seems to mean that the income is taxed as if it was the parent's income (what is then the benefit of a bare trust?). Then there is such a thing as a "designated Dealing account" (AJ Bell I think offers it). But it is not clear what the taxation would be.

Does anyone know of any tax-efficient options? 

Given that the dividend nil rate band (aka Dividend Allowance) can only be used once the Personal Allowance has been used could you clarify what income this child has that is using their Personal Allowance 🤔

None. I am talking about the "parental settlement rule" which seems to only apply to parents (trustees) setting up a Bare trust for their children but doesn't apply to anyone else.

Dazed_and_C0nfused

moneytroll said:

Dazed_and_C0nfused said:

moneytroll said:

Is there a way to invest in shares using your children's personal allowance for dividend income? (going beyond Junior ISAs)

I am confused about various account/trust types and he taxation aspects: 

I just read that there is such a thing as "parental settlement" for Bare trusts which seems to mean that the income is taxed as if it was the parent's income (what is then the benefit of a bare trust?). Then there is such a thing as a "designated Dealing account" (AJ Bell I think offers it). But it is not clear what the taxation would be.

Does anyone know of any tax-efficient options? 

Given that the dividend nil rate band (aka Dividend Allowance) can only be used once the Personal Allowance has been used could you clarify what income this child has that is using their Personal Allowance 🤔

None. I am talking about the "parental settlement rule" which seems to only apply to parents (trustees) setting up a Bare trust for their children but doesn't apply to anyone else.

Ok, ignore that then I thought you were interested in utilising the £500 dividend nil rate band (aka Dividend Allowance).

Keep_pedalling

The rule is there to stop what you appear to be trying to do putting your money into there names but benefiting from the income. 

moneytroll

Keep_pedalling said:

The rule is there to stop what you appear to be trying to do putting your money into there names but benefiting from the income. 

Why are you simply assuming that I would be benefitting from income? The income is to be reinvested. 

xylophone

If a parent opens an account (cash or stocks and shares) or settles property in bare trust for his minor, unmarried child, while the assets and any income thereon is beneficially owned by the child  (and the child has the legal right to access and control at the age of 18), any income arising over £100 per annum is taxable on the settlor parent.

https://www.mandg.com/wealth/adviser-services/tech-matters/iht-and-estate-planning/trust-taxation/bare-trusts-taxation

Keep_pedalling

moneytroll said:

Keep_pedalling said:

The rule is there to stop what you appear to be trying to do putting your money into there names but benefiting from the income. 

Why are you simply assuming that I would be benefitting from income? The income is to be reinvested. 

And are your children going to be able to do what they want with the capital on their 18th birthday? Very brave of you to gift large amounts of money to minors if you do.

artyboy

moneytroll said:

Keep_pedalling said:

The rule is there to stop what you appear to be trying to do putting your money into there names but benefiting from the income. 

Why are you simply assuming that I would be benefitting from income? The income is to be reinvested. 

Well for starters, the very first sentence of your first post implies that it's YOU that wants to take advantage of THEIR allowance. Obviously if that was just poorly worded and you are gifting money to your children to be invested solely for their benefit, that is absolutely fine, subject to the usual caveats/risks of having feckless and irresponsible 18 year olds...

moneytroll

artyboy said:

moneytroll said:

Keep_pedalling said:

The rule is there to stop what you appear to be trying to do putting your money into there names but benefiting from the income. 

Why are you simply assuming that I would be benefitting from income? The income is to be reinvested. 

Well for starters, the very first sentence of your first post implies that it's YOU that wants to take advantage of THEIR allowance. Obviously if that was just poorly worded and you are gifting money to your children to be invested solely for their benefit, that is absolutely fine, subject to the usual caveats/risks of having feckless and irresponsible 18 year olds...

I don't think it's ambiguously worded at all. At no point did I say "I" or that the income would be for "ME". There seems to be some comprehension issues here. The children themselves cannot invest so a parent would need to do it for them and I don't understand why the government gives them a personal allowance but won't let them utilise it in any way.

Also I don't understand the logic here: it is ok for grandparents to put the money into a Bare Trust and use the income to pay for, say, private school fees, but it is not ok to do the same for the parents. I don't get it. I think the reason they encourage grand parents to do it and not the parents is because there is a bigger chance that one of them drops dead before 7 years are up.

wmb194

moneytroll said:

artyboy said:

moneytroll said:

Keep_pedalling said:

The rule is there to stop what you appear to be trying to do putting your money into there names but benefiting from the income. 

Why are you simply assuming that I would be benefitting from income? The income is to be reinvested. 

Well for starters, the very first sentence of your first post implies that it's YOU that wants to take advantage of THEIR allowance. Obviously if that was just poorly worded and you are gifting money to your children to be invested solely for their benefit, that is absolutely fine, subject to the usual caveats/risks of having feckless and irresponsible 18 year olds...

I don't think it's ambiguously worded at all. At no point did I say "I" or that the income would be for "ME". There seems to be some comprehension issues here. The children themselves cannot invest so a parent would need to do it for them and I don't understand why the government gives them a personal allowance but won't let them utilise it in any way.

Also I don't understand the logic here: it is ok for grandparents to put the money into a Bare Trust and use the income to pay for, say, private school fees, but it is not ok to do the same for the parents. I don't get it. I think the reason they encourage grand parents to do it and not the parents is because there is a bigger chance that one of them drops dead before 7 years are up.

The problem is that in the past so many people abused it that now the government doesn't trust you.