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Inheritance for daughter

(11 Posts)
Littleredant Wed 19-Oct-11 10:49:11

My dd (age 10) is about to inherit approx £20,000. My plan is to put £5kish in short term bonds with building society, £7-10k in current post office inflation linked bonds, £1.5-£2k in premium bonds (cos they just might come up!) and have rest liquid for treats over the next 8 years. Does this seem like a good plan? I'm reluctant to do anything that involves paying fees as it's less than 8 years till she's 18. The money was also not put in trust, so in theory she could blow the whole thing tomorrow.

CogitoErgoSometimes Wed 19-Oct-11 11:32:00

Sounds like a good plan, especially the index linked bonds. Personally if I fancied a gamble, rather than Premium Bonds which I think are utterly hopeless, I'd put something into unit trusts (emerging markets, something like that). Over the next 8 - 10 years I think they'll pay out better.

Littleredant Wed 19-Oct-11 13:02:24

Thanks Cogito. I'll maybe look into unit trusts, tho' I've always been put off by fees eating up an amount of any gain.

CogitoErgoSometimes Wed 19-Oct-11 13:13:53

You can compare fees across different funds. I have some in an S&S ISA wrapper which charge fees when I either buy or sell, & dividends are reinvested into more unit trusts. I think it's very important to keep track of the fund prices & costs and, that way, you can choose the moment to sell that will maximise your return. I've probably been lucky so far because the funds I've chosen have always outperformed a straight deposit account over a 10 year period. Have never made a 'killing' (lives in hope) but quite happy with returns.

LadyWellian Wed 19-Oct-11 14:38:45

Unfortunately I think the Post Office (is that National Savings & Investments?) has just withdrawn the index-linked savings certificates again because of the high demand.

If you're worried about fees on investments, investment trusts tend to be cheaper than unit trusts - they don't have initial charges and the annual fees tend to be lower. 8 years is just about long enough to consider equity investment, though if you're relying on it for uni fees or whatever, you might need to move out of shares gradually over the last couple of years to avoid a big market sell-off hitting the value just when you need the money back.

Don't forget Junior ISA is just around the corner, and will allow you to save up to £3,600 a year into cash and/or stocks and shares (you can have one of each type of account but the £3,600 applies across both) that is locked in until DD is 18.

Or there are childern's savings plans like the Children's Investment Plan from F&C or the Jump Savings Plan from Witan that don't have the tax breaks of JISA but also don't have the lock-ins, and can either be held in trust (again, DD's proeprty but no access until 18) or as a 'designated' account, which remains your property.

The latter is taxed as yours and the former as hers.

You might need to be a bit careful with how you set your investments up to avoid the £100 rule. (This states that money given by the parent is taxed as if it were the parent's if it produces income in excess of £100pa). As it's your DD's inheritance it's obviously not technically coming from you, but if you are opening the accounts you may find you need to make this clear. (Disclaimer: I've never actually tried to do this myself so am not quite sure how it works!)

Good luck.

Littleredant Wed 19-Oct-11 15:14:10

Lady, the NSi bonds have indeed been withdrawn, but the Post Office are also offering an index linked product. They are not as good as the NSi ones and I've yet to investigate to see if they can be opened on behalf of juniors so they may not be suitable. Have given up the idea of ever being able to fund University fees, just would like that there's some money there for her when she's 18. Thanks for the tax reminder, I'll bear it in mind. Cogito, do you have any suggestions on where I might get background info on unit trusts (what they are, how they work)? I shall google search, but some pointers on good background sources of info would be helpful.

CogitoErgoSometimes Wed 19-Oct-11 15:15:07

It's the National Savings index-linked bond that was pulled. I know. I missed out sad. The Post Office (Bank of Ireland) one is still there but it's not tax-free. The £100 rule applies to interest on money given by a parent, otherwise children have a personal tax allowance of £7475, same as adults. So as long as the interest on their money isn't more than this, they're not liable. You fill out a simple form when opening the account and they don't deduct tax at source.

margerykemp Wed 19-Oct-11 15:19:57

Can you add to her child trust fund? That way she cant get it until she's 18.

It depends on your own financial situation but I wouldnt want to leave £3k 'lying around' in a normal account espcially not with inflation at 5%.

If she wont need any of it until she's 18 then put it in fixed term accounts.

You could also put it in a pension!

margerykemp Wed 19-Oct-11 15:21:45

Another thought- if you have a mortgage and you can pay in lump sums, you could use it for that, then pay her 'interest' on what you save and then re-mortage to free up the money for her when she's 18 (or want/needs it)

CogitoErgoSometimes Wed 19-Oct-11 15:42:43

I find the website www.thisismoney.co.uk very helpful on things like unit trusts and other financial products. www.moneysavingexpert.com is another excellent resource. You can also talk to an independent financial advisor, of course... they're very good.

A nutshell explanation of unit trusts. They are a way of spreading your risk by using someone else's expertise and investing either in a fund of multiple companies or tracking an index like the FTSE 100.

For funds, they group companies together. For example, 'New Markets' could be new companies in China or Brazil where they think big growth will happen but it's a bit risky. Or a 'Steady Income' fund could be a group of well-established companies that pay out good dividends and aren't as risky. The fund manager manages everything wiith the objective of getting the best results for their fund, and then persuades investors like you and me to buy 'units' in the fund. If they're tracking an index, there's less expertise required but it's the same principle.

If the units start out at £1 each and you invest £10,000 they will deduct their fee... let's say £400... and buy 9,600 units with the rest. You then sit back and monitor progress. If the fund or the index goes up or down, so do your units. 10 years of ups and downs later, you hope your units will finish 'up'....

Littleredant Wed 19-Oct-11 16:19:41

Thanks for your input everyone. Margery, I've considered all sorts, including an accumulator bet at Ladbrookes <half joking emoticon>. Am waiting on further info about Junior ISAs - although at the moment income from any savings/investments would be tax free as she's under 18, hence the Post Office/BoI bonds look tempting although they don't compound the interest. I acted quickly enough and got some of the NSi bonds just before they shut up shop, however her money didn't come through quickly enough, hence this thread.

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