Investing for Children

What plans are there and how much can I invest?

There are several different ways of investing for children and grand-children and a number of things that you need to consider.

If your child was born on or after the 1st September 2002 and before 31st December 2010, you should receive a voucher for £250 that can be used to open a “Child Trust Fund” (an additional £250 may be available for lower income families). A further £250 is added by the government on the child’s 7th birthday. *

On top of this you can add to this fund by up to £1,200 a year and the proceeds will be free of tax on the child’s18th birthday. There are 3 types of account to choose from. A cash account, a share based account and a stakeholder account which may invest in shares at the beginning but after the child’s 13th birthday, the money is gradually moved to safer areas.

* On May the 24th 2010 the Government announced changes to Child Trust Fund accounts. The first stage of these changes came into effect in August 2010. For further information on the changes and if they affect your child, please click on this link http://www.childtrustfund.gov.uk/

You can invest a further £25 a month or £270 a year into a tax exempt account with a Friendly Society which again generates a tax free cash sum at a given age. There are around 200 societies to choose from so getting advice might be sensible.

It is worth remembering that children also have their own income tax allowance so can receive gross interest on quite substantial savings, although for longer term savings, cash doesn’t offer much scope for any growth over inflation.

Some parents would rather save for their children in their own names, fearful of youngsters suddenly having control over a nest egg just at the wrong age! If you aren’t using your full ISA allowance, these can be a very efficient way of building up a cash sum for the future which you can then give to your children at a time of your choosing!

Caution should be exercised especially for grandparents if you earmark investments for your (grand)children or use nomination accounts as the taxman will include these in your estate for inheritance tax purposes no matter how long they have been set up.

If funds are being given for the future benefit of others, then advice should be sought to make sure that you don’t get caught ought by any tax rules and appropriate trusts really should be used. At Ashwood Law we have connections with many solicitors to help you with this.

The value of investments can fall as well as rise. You may not receive the original amount invested.

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