A financial head start for children
Giving children a financial helping hand can assist with school and university costs, a first home or car - or just provide a decent financial boost to adult life. And it’s never too early to start putting money aside as the more time that your investments have to grow, the more effective your financial help can be.
What sort of investments you choose is up to you but if you are planning to invest for the next 5, 10 or even 20 years, investing in investment trusts could be more rewarding than ‘safe’ investments such as bank or building society deposit accounts, after inflation. Moreover, using investment trusts can be simple, sensible and relatively low cost but you should always remember that past performance is no indicator of future returns.
Investing in investment trusts for children
Although children cannot invest in investment trust shares in their own name, there are a range of options available to parents (or other adults) wishing to invest on their behalf:
The designated account route
Adults can make children’s investments in their own name, simply adding the name of the child to the account (this is called a designated account). There is no maximum investment limit. Following this flexible and straightforward route, you retain ownership of the shares, allowing you to access the money at any stage but with the option to transfer the assets to the child when they reach the age of 18 (or at a later stage, if you prefer). If you choose this route, your designated investment will be taxed as your own and will remain within your estate for inheritance tax purposes.
A Junior Individual Savings Account (JISA) works in the same way as a standard Individual Savings Account. This means that there’s no income tax to pay and no capital gains tax liability to worry about. Once a parent or guardian has opened a JISA, anyone can contribute to it making it very easy for other family members to invest. There is a maximum investment limit each tax year (up to £4,368 for the 2019/20 tax year) and no withdrawals can be made until the child reaches 18 (at which point the JISA converts into the child’s name).
Planning ahead for a child’s retirement may seem rather extreme but it can be a very worthwhile, tax-efficient route. You can start putting money into a Self-Invested Personal Pension (SIPP) now and invest for the truly long-term, since although control passes to the child when they reach the age of 18 there’s no access to funds until the child reaches retirement age. Anyone can invest and you will receive basic rate tax relief from the government on contributions. There is a maximum annual contribution limit (£3,600 gross or £2,880 net for the 2019/20 tax year).
How to invest for children
Allianz Global Investors does not offer its own Investment trust savings plans for children. However, a number of the providers listed within our Platform Directory do and their products enable you to invest in Allianz Technology Trust, Brunner and Merchants on behalf of children. Please contact your chosen provider to find out what each offers.
Please remember that the value of tax relief depends on individual circumstances. If you have any doubts about the tax implications of investing for children you should seek professional advice.