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How to invest tax-efficiently for adults and children

Kim North
Kim North (Kim@techandtech. co.uk) is founder of Technology and Technical

I am keen to invest my money in tax-efficient investments for myself and my children. What would you advise me to do?

There are a reducing number of tax-sheltered investments available and you are wise to shelter your investments from tax. All taxpayers should try to make full use of the taxefficient investment choices that remain.

Apart from the obvious pension scheme tax relief, the annual individual savings account allowance has been for many the first point of call to benefit from the capital gains tax and income tax benefits. To open an Isa, you have to be aged 16 or over if the Isa is a cash Isa or 18 or over if it is a stocks and shares Isa. You also have to be resident and ordinarily resident in the UK for tax purposes.

There are over 100 Isa managers that can be seen at www.hmrc.gov.uk/isa/isa-managers.pdf.

From April 6, those eligible can save up to £5,100 in a cash Isa and the remainder of the £10,200 into a stocks and shares Isa with either the same or another provider. This means that the cumulative total that could be saved taxefficiently since the introduction of Isas to over £100,000.
Investing for children is different than for adults as minors are not able to take out their own investments. Often. parents hold assets for their child in a simple bare trust. There are, however, a few children’s tax-efficient investments.

The child trust fund
The child trust fund is a tax-efficient savings account for children born on or after September 1, 2002 that matures on their 18th birthday.
Qualifying children will receive a voucher from the Government worth at least £250, to invest into a CTF account. The voucher must be used to open an account within 12 months of the issue date.

A total of £1,200 on top of the value of the vouchers can be invested into the CTF each year. At the child’s 18th birthday the fund will be available to your child tax-free.

National Savings
Tax-free income can be generated through some National Savings products, such as the fixed-interest savings certificates and indexlinked savings certificates. A maximum of £15,000 can be invested in each issue.

Children’s bonus bonds also offer tax-free income with a limit of £3,000 per issue per child. A bonus is paid every five years until the child’s 21st birthday, all tax-free.

Friendly society bonds
Investment into friendly society policies is limited to £270 per year or £25 a month.

Although the friendly society life fund is free of tax, the qualifying rules on life insurance policies apply. This means that profits on a policy surrendered before maturity could be chargeable to personal income tax at the individual’s full rate.

The returns are tax-free at maturity and the bonds are not income-producing assets. This avoids the interest above £100 paid on a child’s deposits or investments set up in the name of a parent being treated as the income of the parent. The whole sum is taxable (not just the excess over £100 a year).

Kim North (Kim@techandtech. co.uk) is founder of Technology and Technical

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