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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My question is how can I invest on my childrens behalf for

Resolved Question:

My question is how can I invest on my children's behalf for them to take advantage of their personal allowance?

My family wish to provide funds to invest for the future of my children.

As my son has a CTF he cannot have a JISA.

My daughter has a JISA but the interest she receives is derisory.

My bank say that they wont open up accounts for children which did appear to be the best means to invest in all sorts of products.
It appears that they are not alone in not creating bank accounts for children under 7 years of age.

How, therefore can we invest?

Can I for instance open up a joint account with my son with any interest gained being associated with my son and not me?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi

Thanks for your question

I am Sam and I am one of the UK tax experts here on Just Answer.

Sadly any investment that is made on behalf of children is treated as the income of the adult whom the investment is made by.
So its very hard to make use of their personal allowances, as the products available for children are usually tax free or if not, then treated as the adults.
SO no, the joint account you propose with you and your son both as account holders would be treated as your income on any interest that arises.


However there are various investments (most of them tax free0 that can be made, but you have utilised these options (Child trust fund and Junior ISA

But there are Junior Children Bonus Bonds from national Savings and the consideration of a Trust Fund -

The only downside to a Trust Fund is that it would require administration and trust returns completed, and tax due on income arising but worth chatting to an independent financial adviser or solicitor about. And a purchase of property perhaps, then placed in trust could also be a consideration.

But as things stand, I am afraid there are limited options.


Thanks

Sam

Customer: replied 2 years ago.

Hi Sam,


 


Thanks for the info even if it does show that we have very limited options.


 


However, you mentioned the use of a trust with its reporting requirements but said tax would be charged on income. Could the child's tax free allowance be used before paying tax using this approach?


 


Presume investments with income paid gross could be made in the name of the trust?

Expert:  Sam replied 2 years ago.
Hi

Thanks for your response - apologies for my delay - knee deep in "A Level" Psychology with my son, ready for his exam tomorrow !

No the child tax free allowance could not be used against the income arising within a trust, as any income would be deemed to belong to the trust - not the child.

But investments could be made in the name of the trust and most would be paid gross and then would be subject to tax on the trust itself, and I have added a link here of the different sorts of trusts and how the operate and what tax positions sit with each.
http://www.hmrc.gov.uk/trusts/income-tax/income-types.htm

Thanks

Sam
Customer: replied 2 years ago.

Hi Sam,


 


There's no rush if you are so busy.


 


Having had a quick look on the HMRC link would I be right in thinking that an in possession trust would be best in this case as the tax rate is 10% without limit?


 


Also the investments I'm looking at are peer to peer lending to businesses so would that be seen as dividends as it certainly isn't savings. Not sure if you have come across Bonora based in Estonia but it's "dividend" or ROI is in the region of 21%.

Expert:  Sam replied 2 years ago.
Hi Roger

Thanks for your response - its fine -- have given son an hour "time out" from my enforced revision sessions !

We tax experts, are no experts in the trusts them selves (which I am sure you can appreciate) but how they are charged - but yes, I agree that, the gist is that, dividend income is just subjected to 10% tax

However on the position of tax that will already have been suffered at the foreign tax rate, please note that this will not be recouped through the trust (thereby creating tax refund) - it will allow no further tax to arise (as the foreign tax credit will cover the UK tax position) but you may have to look into whether the additional tax suffered - can be reclaimed from the arising country -
I haven't heard of Bonora - but again I am not a financial/investment expert - just the taxation position of the incomes and the declaration of those incomes !

Do feel free to ask any tax related further questions but it would be appreciated if you would rate the level of service (or accept) I have provided, as this ensures I am credited for my time

Thanks

Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 13774
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Sam and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Hi Sam,


 


What is the tax situation if my children receive a payout from the trust?


 


Can they then claim their allowance before tax is paid?


 


Rgds,


 


Roger

Expert:  Sam replied 2 years ago.
HI Roger

Thanks for your further questions

Even with a parental trust - or any other trust -

They cannot have anything from the trust until they are 18 - but if anything were paid out, then its treated as the parents income for tax purposes. (or whoever set up the trust - known as the settlor)
After 18 - then the trust is free to distribute to the child any income that arises, or pay out on the trust entirely (as long as more than 7 years have lapsed) and it becomes liable on the child (then deemed adult) and then their own personal allowances can be utilised against that


Thanks

Sam
Customer: replied 2 years ago.

Hi Sam,


 


What is the tax situation in regard to the capital Gain on the assets whilst we await their 18th birthday which is fine we me and when the trust pays out what tax do they have to pay at that stage?


 


Rgds,


 


Roger

Expert:  Sam replied 2 years ago.
Hi Roger

Thanks for your further question

What capital gains? You are talking of investing money - which does not give rise to a capital gain, as tax is paid on the investments at the time through the trust tax returns.

Only assets would then go onto have a capital gain consideration, and you have made no mention of any assets.

Thanks

Sam
Customer: replied 2 years ago.

Hi Sam,


 


The assets put into the trust have yet to be decided and their particular tax treatment might sway our decision regarding what gets put in.


 


If say we put in a property or fine wine then it would hopefully increase in value.


 


Trying to minimise what the trust pays and the beneficiaries pay is really what I am trying to ascertain before we create the trust given it seems to be the best vehicle for our purposes.


 


Rgds,


 


Roger

Expert:  Sam replied 2 years ago.
Hi Roger

As this is far more work than your original question suggested and now getting into a completely different realm as you are asking after assets and trusts, then I am afraid as per Just Answer policy this will need to be listed as a new question.

I am sorry

Thanks

Sam
Customer: replied 2 years ago.

Hi Sam,


 


No problem, thanks for your help.


 


Rgds,


 


Roger

Expert:  Sam replied 2 years ago.
HI Roger

You are very welcome


Thanks

Sam

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