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Saving for children(25 Posts)
Aaargh, can't understand anything on the Motley Fool website so am here in safer waters.
I have been saving ds's child benefit into an Abbey National children's account in his name with me as trustee, and had the cb paid into it directly. Now I get more cb as I have dd as well, but I didn't realise the two amounts would be added together and paid as one, so instead of giving it all to ds I have had to have it paid into my account. Is the best thing to do to set up the same account for dd as ds already has and have two direct debits coming out of my account into theirs - or can I get the cb people to split the money and send it directly?
I also have an ISA share investment account for ds with Fidelity into which we pay 50pounds a month. It will mature when he is 18. I am now worried that a/he will be able to take all the money and spend it on anything he likes at that point, and b/ that it will be taxed as my money. Also, do I need to renew the ISA?
Should I do the same for dd?
And re the 250 I got for dd - really don't want to invest in this so she can spend it any way she likes at 18 (I want it to pay for universty, ideally), so what can I do with it that will be worthwhile? Any ideas.
And failing this.....can anyone recommend a great financial adviser who can explain things to the financially illiterate in London!
Here's my layman's take on it:
CB - this is "your" money, not the kids, so CB won't split it. So best option is for you to have the money into your account with standing orders goin out to the children's account. Strictly you get more CB for ds than for dd, but you would probably wish to split the amount evenly I guess. As CB counts as your money, once the children's account start to pay >£100 pa then the interest will be taxable at your tax rate, not theirs.
The ISA - again strictly I would have thought that this must be yours at present, as you have to be 16 to have one. But yes, it is still "taxable" on you (though obviously it is a tax-efficient vehicle). However when you eventually transfer it to ds it will lose its ISA status (which makes sense as otherwise he would have built up 16 years of ISA allowances which he wouldn't otherwise be entitled to). You don't need to renew the ISA as such - I would be surprised if Fidelity didn't assume all the payemtns were for the ISA, but obviously this affects your remaining annual ISA entitlement. You will need to talk to Fidelity about the implication of setting up something for dd, as this is a second ISA investment in your name. Given that, if it is an ISA, then it is yours, you can decide at what age you want to trnasfer the investment (or just use it for university fees).
As for the £250, this is the one thing that is your dds, and you can't stop her using it as she wishes! I would stick it into one of the few funds which will invest it in shares, as the "cash + interest" option doesn't look that great. I think that Foreign and Colonial do some that mean you don't have to make an ongoing investment.
As LM said, ds gets more CB than dd, but IMO the fairest way is to split the total equally between the 2. YOu should get your CB paid into your account, and then set up direct debits to pay it into accounts for each of the children on a monthly basis (Though you have to x 52/12 to get a monthly figure as CB is paid 4 weekly but most banks prefer monthly DD's.) If you are sure you want to continue invetsing it in cash it will be counted as theirs until the annual interest reaches £100 (which would need a balance of £2,000).
Personally I would switch this to an equity investment as you are looking at a 13 year term at least and over the long term, equities usually outperform cash. You could also add your £50 ISA investment to this money and make one payment each for them per month - most providers will accept a minimum regular payment of £50.
Fidelty will assume you want to continue with your £50/month into an ISA each year until you tell them different. But IMHO you should not really be investing for them in an ISA - this means that you cannot invest for yourself in an ISA. And you should be doing that - even if you canot afford regular payments into your own investment account any cash savings that you have should be in a Cash mini ISA (up to £3,000 a year). ISA's offer 2 forms of tax relief- income tax relief (although this is limited now since the abolition of the dividend tax credit) and CGT. For a long term investemnt I would always recommend investing in a unit trust that is managed for growth rather than income, and therefore you don't get any dividends, so the ISA wrapper is worthless. And by investing in a unit trust in yourname but designated for each of your kids, you can transfer the investment to them when YOU want to and under current IR rules it will be counted as being transferred at cost. They would therefore be liable to CGT on any profits made on it, but would have their own annual allowances to offset each year (£8,200 last year). So unless they had done really well, tax should not be a problem.
As to the appropriate investment.... you need to look for a fund managed, as I said, for growth. UK smaller companies are looking particularly attractive at the moment, or you could follow my example and invest in a sector such as biotech or health, which has excellent long term growth prospects, or even invest in an Asian Growth or emerging markets fund. Because of the time frame, you can afford to look at slightly riskier investments like this rather than safe but boring UK Blue chip or tracker (because a tracker follows markets down as well as up) and because you are making monthly investments, you benefit from pound cost averaging -which means that when prices of your holdings go down, rather than being a bad thing (any loss is just paper until you come to sell), it's a good thing as it means your £50 a month buys more units.
CTF - personally we have gone for cash - this is because the charges on the equity funds are appalling for what are usually very basic tracker or blue chip stocks, where tbh, a monkey has as much chance of outperforming. I don't mnd high charges (hell they are what pay dh's bonus) but I do want to get something other than a computer programs stock selection back in return. HANLEY ECONOMIC BS have the best rate at the moment (again, check moneyfacts)
I honestly wouldn't bother with an IFA for what you want - it's just another layer of charges. YOu can look on www.moneyfacts.co.uk for performance tables for units trusts, or just read the financial pages in the Sunday newspapers.
But please note that I am not qualified to give financial advice to non sophisticated investors (that means you are not a financial comapany, not that you are not a sophisticated person btw )
CB won't split it so I would put it in your own account then arrange a direct debit out to the children's accounts - splitting it that way
If you are happy with Abbey National's rate of interest then just open an account for DD there
An ISA does not 'mature' as such, they are flexible plans so you could get to the money whenever you want - personally I would go by the 'if he don't know about it, he can't get it' route and only give it to him when he's ready for uni / or wants a deposit etc... is it a tracker isa or a managed fund?
If it earns more than £1,000 interest then you could be taxed on it yes
The 250 for DD I would personally put in an index tracking share account and forget about it (we've put ours with the Share Centre which invests in L&G's index tracker) .. it won't be enough to 'pay for' uni but should be ok
the ISA you have for DS must be in your name, come to think of it, because a child can't hold one .. so its your money till you decide to use it to pay for his education
you aren't taxed on ISA's ever .. but if when he's an adult you give him a big lump sum then there could be tax implications .. far better to pay his education fees with it
Thank you all so much for all this...I need to ponder. Maths was never by strong point and it all makes my head hurt a bit, but you are excellent demystifiers.
prufrock - can I ask - how do you 'designate' a unit trust for your kids? And do I understand correctly that you are suggesting just a straight unit trust, not an ISA?
I've been so rubbish about this - haven't got anything off the ground to save for them at all. I suppose I am mainly of the opinion that they don't need their own savings (apart from small amounts of their own money to learn with) - I can just give them stuff as and when from my money. Is there a flaw in my argument or not?
btw, I thought giving large lump sums to your children wasn't a problem tax wise - I've had money from my parents but when I checked out with the IR they said no problem, don't need to declare it....
except of course if it became an inheritance tax issue.
'Designating' basically means you are holding the money on behalf of your child -- technically it's called a 'bare trust'. The money belongs to the child for tax purposes (with the proviso about £100 income limit for money given by parents) but is controlled by you until they turn 18.
All kids' bank accounts for under-7s are held this way, so the a/c will be in your name, but may say something like 'in re Miss Elliotsbaby', or just have the kids name or initials after yours.
On unit or investment trusts a designation is usually shown by the child's initials after your own. There's usually a box you have to tick on the application form if you want to do this. Your paperwork will then say something like Accountholder Mrs Elliot EB, where EB is the initials of your child.
Clear as mud, no?
well sort of. I must admit I'm not very clear what exactly the advantage is of doign this rather than just doing my own savings and giving them money when I want to. as far as I know my parents never had any specfic savings for us but it hasn't stopped them giving us cash every now and then.
Elliot. You designate simply by opening the account in your own name and adding "Re: <childs initials>". Current IR rules mean that they would treat any money invested in this way as the childs for Inheritance tax purposes, and allow transfer to the childs own name (when you want to) at original cost - so no CGT liability for you. Of course - they can change those rules in the future.
You can't designate funds within an ISA wrapper in this way, as you are then getting ataxable benefit from them. But IMO the ISA wrapper for equities is pretty worthless for this purpose as growth shares rather than income are (again IMHO) a more suitable investemnt for a 15+ year timeframe (so no dividend income to be taxed anyway), and the child can use their own CGT allowance (8,200+ inflation hopefully) which should be sufficient for any profits when they come to sell (and if not you can always stagger the eventual sales over 2 or more years). Far better (IMHO) to utilise the ISA allowance yourself by putting any spare cash savings you have into a cash ISA.
There realy isn't anything wrong with just giving your kids money as and when they need it -except that you might not have it when they need it.
And you are right about only issue being IT
thanks prufrock. So as well as the IT issue (which I can't really get worked up about personally) is is just an issue of whose CGT allowance is used - if I cashed in a unit trust investment say to give the kids money, then I'd be liable for CGT whereas if it was a designated theirs, it would be their CGT (and only since transfer?? or over the whole investment?)
I think I will probably stick with the simple approach. If I haven't got it when they need it, too bad....
Thye would pay CGT at original cost. So thye would be taxed on any differnce between the money you had invested and the realised sale amount - less their own annual allowance
Twiglett, what is the Share Centre?
Prufrock....go on, just a little tip...go on!
What have others done with their money?
ps, I really like the idea of just not telling them the money is there for them if I think they are being particularly silly when they turn 18!
I've put the CTF voucher in HSBC fund, but will not be adding to that. I'm going to save into an investment-based ISA and then I can give the money to ds when I choose to for him to use for something sensible.
aloha I put the CTF money in the CIS/children's mutual ethical tracker - just because it was the only ethical investment I could find and at least it made the decision simple - though I take prufrocks point about the charges being excessive and cash might not be such a bad plan.
the child benefit money goes into one of the pots in our offset mortgage - so its not even earning anything, just saving us on our mortgage Every so often I raid it for big purchases but otherwise it is just mounting up rather uselessly.
I don't think you'll get away with not telling dd about the CTF money - but of course there's no reason to make a song and dance about other savings. I think that's way I prefer just to keep everything in my name and just help out the ds's at some point if they need it. We never had a tradition of saving for us in our family - i think its only been relatively recently that my parents have felt wealthy enough to help us out. Of course they did help us through university too but that's a different issue imo.
Ok all, I have a mini stocks and shares ISA in my name (of course) with Fidelity. It is a wealthbuilder scheme which matures in 15 years time (slowly putting the cash into safer and safer options for security) which means it will end when ds is 18 and when dd is 15. Now....do you think I should stop saving the CB into an Abbey children's account and put it all (ds's and dd's) into the Fidelity savings plan? I am confused because charges seem to just gobble up the money - despite putting 50 pounds a month in the Fidelity is is worth less than a thousand pounds atm, while I have more than that in ds's savings account. Am I missing something? The answer is probably yes as I am dismally financially illiterate.
What's the best cash deal for the CTF money? Any ideas oh wise ones?
You could try searching on www.moneyfacts.co.uk. Search under savings best buys and then under children's accounts. They have best-buy cash CTFs.
I'm glad it's not me who is phased by Motley Fool.
The idea is that your stockmarket investment will perform better than a cash-based investment over time despite the charges you pay to invest in the stockmarket. Stockmarket investments are medium- to long-term ie 5 years plus. If you try the consumer factsheets on the Financial Services Authority website there may be an explantion and some calculations www.fsa.gov.uk HTH
I was wrong - the fund matures in 2015 - only ten years! when ds will be 14 and dd will be ten, which is far too early! Um, think I made a mistake there. The alternative was to end in 2020 when ds will be 19 which would have been much better. Should I change do you think? I am clinging to you lot like a drowing man to a liferaft, you realise, as am idiot.
You probably can't change without paying some sort of penalty, but you could reinvest when the fund reaches maturity.
You could stop investing, I suppose, and let the fund carry on until maturity and then invest somewhere else, but you will still have to pay an annual management charge.
I would probably stop investing in the Fidelity fund. Lifetime plans like this (that gradually change the assets to less risky ones) are not my favourite- the asset allocation decisions work to a formula which takes little account of your personal circumstances or even sometimes of market conditions (though I have to admit here to having made some terrible asset allocation decisions with my personal portfolio). You need to call them and ask if there are any transfer out fees and which fund it is invested in at the moment to see if now is a good time to exit.
I don't want to give advice here - though I do think that the unbelievably attractive and intelligent SAHM from Hertfordshire quoted here speaks sense .
If you do want me to tell you what we have done then e-mail me - prufrock at hotmail dot co dot uk. I also know lots of v. friendly discount brokers who will rebate you their commission if or when you decide what to invest in.
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