Investing for Older Children
Children cannot hold unit trusts in their own name until the age of 18. However parents or grandparents can use funds to save for older children, and they are not limited by fund choice or upper investment limits.
Use a Designated Account
Parents or grandparents may open accounts in their names and designate the accounts with the child's initials. This earmarks the holding for the child, although the investment remains in the owners' control, and is taxed as their own holding. The plan can be transferred from age 18 or at any later stage. The holder has access to the money at any time. This method may be more useful for parents.
The fund will be taxed as the holder's own fund and normal rules apply. It will form part of their estate. The transfer to the child's name at age 18 will be a chargeable event for capital gains tax purposes.
Establish a Bare Trust
Alternatively you may formally establish a 'Bare Trust'. The money is gifted to the child and the holding can be distinguished as being specifically for the benefit of the child. The trust is irrevocable. The child is absolutely entitled to the fund from age 18. The trustee(s) hold the investment until then but have no right to make use of the money in any way. The investment will not form part of the trustees' estate. This account may be more useful for grandparents.
There are some tax implications. Income generated of more than £100 per year is taxable at the holder's income tax rate. But capital gains will be set against the child's own allowances in the tax year of encashment. The gift through a bare trust will be counted as a Potentially Exempt Transfer for inheritance tax purposes.
Use a Fund Supermarket
All the funds and portfolios in ISA Direct may be used for these purposes and you can also open accounts using either of the Fund Supermarkets with all the benefits that includes. This means you can choose a selection of funds from different managers within a single account. You will qualify for our fund discounts, but these may be slightly different from the ones quoted in our brochure regarding ISAs. You will also have the option of accessing the account online and managing any top-ups or fund switches.
We have also identified a series of accounts specially designed to be suitable for older children who did not qualify for the voucher. See opposite.
The Children's Mutual Growing Up Bond offers the same fund range as their Child Trust Fund as described and includes a range of 11 managed funds from Gartmore, Invesco, Insight, and UBS. An Ethical fund is available.
Invesco Children's fund is a well-managed generalist UK equity fund.
Baillie Gifford Children's Savings Plan offers a range of their own investment trusts including Scottish American, Scottish Mortgage, Pacific Horizon and the Monks trust.
Foreign and Colonial Children's Investment Plan , offers a selection of fourteen of their own investment trusts covering areas from UK smaller companies, international growth, the pacific region, and private equity.
Henderson's JUMP plan invests in the Witan Investment Trust.
Reyker Securities. This is a self-select share dealing account that offers the account holders the ability to invest in any quoted share, investment trusts, gilts, ETFs, private equity trusts, and listed hedge funds.
