Investing for Children
Most parents want to help their children financially, whether it is making sure there is enough money for their education or eventually helping them to buy a property. An early objective as they grow up may well be to help children understand the value and importance of money.
Whatever the reason, tax will be a major factor to consider, as will the risks of giving children too much money too soon. It is therefore important for parents and others to appreciate the basic tax and legal rules, and the investment products that are suitable for children, to help achieve the goals set for them.
CHILDREN CAN BE TAXED
Children − even babies − are not exempt from tax. If they have enough income or capital gains, they will be subject to a tax bill just like adults. And like adults, they are generally entitled to a certain amount of income without paying tax. This is the personal allowance, which is £12,500 in 2020/21.
In addition, each child has:
a 0% starting rate band covering £5,000 of savings income;
a dividend allowance of £2,000;
assuming they do not pay tax at the higher or additional rate) a personal savings allowance of £1,000;
their own annual capital gains tax (CGT) exempt amount of up to £12,300 of net gains on investments in 2020/21.
There is a special rule that applies to children’s income until the child reaches age 18 or gets married, if earlier. If the child’s income is derived from a gift from a parent it is taxed as the parent’s income, unless the income does not exceed £100 a year (£200 if both parents have contributed jointly).
TAX-EFFICIENT INVESTMENT FOR CHILDREN
Several financial products enable parents and others to invest tax efficiently for children. Of course, tax is not the only factor to consider. Aside from investment risk and reward, you need to think about the costs of investing; some investments can be significantly costlier to buy and hold than others.
REGULATORY STATUS OF THE SERVICES/ ADVICE
Inchmead Financial Services Limited is a joint venture with Beaufort Financial (Wokingham) Ltd. Beaufort Financial is a trading name of Beaufort Financial (Wokingham) Ltd, an appointed representative of Beaufort Financial Planning Limited which is authorised and regulated by the Financial Conduct Authority. Beaufort Financial (Wokingham) Ltd is registered in England & Wales. Company No. 12495066.