Your
Guide
INVESTING FOR CHILDREN
More information can be found on our website
www.charles-stanley.co.uk
INVESTING
FOR CHILDREN
IF YOU WOULD LIKE TO PUT SOME
MONEY ASIDE FOR YOUR CHILDREN
OR GRANDCHILDREN, PERHAPS TO
HELP WITH SCHOOL OR UNIVERSITY
FEES, CHARLES STANLEY OFFER
VARIOUS OPTIONS, SOME OF WHICH
HAVE TAX BENEFITS FOR YOU, THE
DONOR.
Bare trusts are potentially the most
advantageous option in terms of gaining the
best tax treatment. Assets held within the trust
are treated as belonging wholly to the child and
thus income and capital gains are taxed against
them and not the donor (other than in relation
to income from trusts established by parents for
their own children). Junior Individual Savings
Accounts (JISAs) allow for investments to be
held for a child by a parent free from personal
taxation, just as with an adult ISA. Assets held
under a designated account remain the property
of the adult for tax purposes and are purely a
method of separating out funds with the possible
intention of passing them to children at a later
date.
BARE TRUST
▪▪ A bare trust is usually evidenced by a trust
deed or can be created by statute in cases of
intestacy.
▪▪ The beneficiary has an immediate, irrevocable
and absolute entitlement to the property of
the trust and takes legal title from the age
of 18 years in England, Wales and Northern
Ireland and 16 years in Scotland.
▪▪ The trust is transparent and the assets belong
to the child, therefore income tax and capital
gains tax are assessed against the child.
▪▪ Trustees have no discretion: the beneficiary
cannot be changed once named.
▪▪ A bare trust can be set up to benefit
more than one child – for example a
‘grandchildren’s trust’ – and the assets will be
owned equally between them unless specific
shares are identified at outset.
▪▪ Transfers into bare trusts have the advantage
of beneficial treatment for inheritance tax
(IHT).
▪▪ Small transfers up to £3,000 (the annual
gift exemption) or £250 (the small gift
exemption) will be immediately exempt from
IHT, as will funds provided by way of regular
gifts from surplus income.
▪▪ Large gifts are potentially exempt transfers
(PETs) and will be fully exempt from IHT
provided the donor survives for seven years
from the date of transfer.
▪▪ With regard to bare trusts created by parents
on behalf of a child, if income from the trust
exceeds £100 per annum then it is taxed
back on the parent. This can be avoided
by suppressing income within a portfolio
or wrapping the investment in an offshore
insurance bond – a non-income producing
investment.
JISA
▪▪ Allows parents, family and friends to
contribute for a child up to 18 years of age
who lives in the UK.
▪▪ Long term, tax free savings account for
children.
▪▪ Cannot open a JISA if you already have a
Child Trust Fund.
▪▪ The maximum subscription for 2015/16 is
£4080, which can be invested in either a Cash
JISA or a Stocks & Shares JISA, or split in any
proportion between the two. Unlike ‘adult’
ISAs where they can open and subscribe to
new ISAs in each tax year, a child can only
hold up to two JISAs (up to one of each type)
throughout their childhood. However,
▪▪ This signifies a possible future intention to
pass the investment on, but no obligation to
do so.
▪▪ On this basis there is no transfer of value
hence the assets remain the property of the
adult holder
▪▪ The income and capital gains are taxed on
the holder, and there is no gift for inheritance
tax purposes so the value of the investment
remains fully within the holder’s estate.
between the age of 16 and 18, they made hold
up to two JISAs plus an ‘adult’ Cash ISA.
▪▪ Won’t pay interest on cash, or tax on capital
gains or dividends received.
▪▪ The account must be opened by a
child’s parent or guardian with parental
responsibility.
▪▪ It is the parent or guardian’s responsibility
but the money belongs to the child.
▪▪ The child may take control of the money
when they’re 16, but money cannot be
withdrawn until they’re 18.
▪▪ From 6 April 2015, it is permitted to transfer
a Child Trust Fund (CTF) to an Junior ISA
(JISA). Partial transfers are not permitted,
the CTF must be transferred in full. As the
child cannot have a CTF and a JISA, if a JISA
is opened the CTF must be transferred as
part of the application.
▪▪ Not the same as a bare trust
▪▪ In all situations where funds are directly
invested a bare trust should be used unless
there is no actual intention to make an
irrevocable gift.
For further information please contact your
Charles Stanley Account Manager or, if you are
not yet a Charles Stanley client, contact us at:
E: madeforyou@charles-stanley.co.uk
Your
Guide
▪▪ The transfer may take place, even if at the
time that the transfer is made, the child
would not be eligible for a JISA – for example
because they are no longer resident in the
UK.
DESIGNATED ACCOUNT
▪▪ The only circumstances under which a
designated account is suitable for investment
on behalf of a child is where the capital to
fund the investment already belonged to that
child, for example cash built up in a savings
account in the child’s own name via gifts from
relatives is then channelled into an actively
managed investment account operated by a
parent and designated for the child.
▪▪ Assets are held in the name of the adult and
designated with the child’s initials as a form
of ‘earmarking’.
The information does not constitute advice
or a personal recommendation and you are
recommended to seek advice concerning
suitability from your investment adviser. The
price of shares and other investments, and the
income derived from them, may fall as well as
rise and the amount realised may be less than
their original sum.
The information given in this document is based upon sources we believe to be reliable, but its accuracy
cannot be guaranteed. Tax reliefs are those currently applying and the levels and bases of taxation can change.
Investors should be aware that past performance is not necessarily a guide to the future.
32.01 May 2015
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Registered Office: 25 Luke Street, London EC2A 4AR
T 020 7739 8200 DX 123150 BROADGATE-1
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© 2015 Charles Stanley & Co. Limited