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Helping the kids save

When parents ask Enable’s IFA’s in Bishop’s Stortford to help them save for their children one of the easiest ways is through a simple trust or “bare trust”, but some argue that this method often gives the child too much control over the money. When they reach 18, they have full rights to the income and capital and they can decide where to invest that money. “The child has no say in the investments before this time, but when they’re 18 they can blow it on whatever they want,” said Patrick Connolly of Chase de Vere.

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Another option is a “discretionary trust,” as the name suggests the trustees have discretion over how to use the money, and you can stipulate an age restriction. But unlike a bare trust, where the child can use their own tax-free allowance, the rules are different for discretionary trusts. With a discretionary trust, the first £1,000 of investment growth is only ever taxed at the basic rate. Any growth above this is taxed at 45pc. Any increase on the original amount you invested, after costs and any losses is taxable. On top of this, if you dispose of shares the trustees will be able to use an annual capital gains tax exemption of £5,500, so capital gains could become an issue.

To be as tax-efficient as possible it makes sense to structure investments towards “growth” rather than “income”, so that you limit the dividend income – and therefore the tax. If you need help working out if a trust fund is right for saving for your child Enable’s experienced IFA’s in Bishop’s Stortford can help.

Issued by: Enable Independent Financial Life Planners 
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 – Fax: 01279 657339
 Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.

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