Following the Government’s decision earlier this year to stop making any future payments into child trust funds, what are the remaining options for investing on behalf of my children?
You can set up a stakeholder pension and put £2,880 in, £3,660 gross, but the restriction there is that your children will not be able to take anything out until they are 60, which is a long time. This age also depends what the rules will be at the time. So this is not really investing for the whole of their life, it is for their retirement.
While this will help in the long term, it will not help support them as they go into adulthood.
You could also set up bare trusts – grandparents and parents can both do that – but the rules are quite complicated and the declarations are quite opaque and not very easy for many people to get to grips with what a bare trust is and whether they have done the right thing.
Part of the problem when investing for children is the rules governing parental contributions.
The rules around bare trusts are quite vague. Even the Inland Revenue is not too clear on this.
People can do it but you cannot have the absolute utmost confidence that you have done it correctly. You will only find out if it has been done correctly after the event.
You can also hold assets in your own name, which is effectively account designation. There is some confusion with bare trusts.
If you do hold assets in your name through account designation, then be aware that it may still be considered your assets.
It is a bit clearer if it is grandparents doing it on behalf of grandchildren rather than parents on behalf of their children.
I think the really key thing for savings and investments is keeping it simple and making it easy to understand and access it.
We are delighted to see the introduction of the junior Isa, having called for these as a replacement to child trust funds when they were cancelled early this year.
It is important to remember that children have their own personal income tax and capital gains tax allowances and are able to hold their own bank accounts.
The introduction of a junior Isa should remove the existing process for investing on behalf of a child which is unnecessarily complex and lacks transparency.
Isas are well established and well liked products that allow individuals to invest in stocks and shares.
Investors are familiar with the structure and tax reliefs of Isas and therefore feel comfortable putting their cash into them.
The Isa puts a wrapper around the child’s assets, making it easier to manage the tax treatment of interest. They can also be transferred easily and will also reduce any confusion surrounding bare trusts.
Early indications are that the allowance is set to be £5,100, with up to half in cash and the balance in stocks and shares.
Holders will not be able to encash the Isa until the child reaches 18 and it will be held in a designated account with parents or legal guardians as the authorised administrator. Anyone is welcome to contribute to the Isa.
Adrian Lowcock is senior investment adviser at Bestinvest