“I have two children and would like to start investing for them. A relative has recently offered to give me £250 a month for each of them to invest but I don’t know where to start.”
There are a number of options to consider.
Firstly, the money can be invested into Junior ISAs (JISAs) for each child. These can be cash based or stocks and shares based depending on your preference. Given that you are willing to take some risk, a stocks and shares JISA may be more appropriate. Currently, you can invest up to a maximum of £9,000 p.a. into a JISA for each child. The benefits of a JISA are that income and gains are tax-free and the money can be withdrawn at a later date as a single lump sum to use as a house deposit or in stages to pay for university costs. However, note that once the children reach the age of 18 the JISAs will be moved into ISAs in their names and they will be entitled to access the funds themselves.
If you are concerned about the children gaining control of the money at age 18, you could consider investing the money into a stocks and shares ISA in your name, presuming you have sufficient available annual ISA allowances to utilise. You can then control the timing and amounts of future gifts to the children. However, in this scenario your relative would need to give you the money each month so there could be an IHT liability. If you don’t have sufficient ISA allowances available then your relative could invest in a stocks and shares ISA in their name, assuming they has sufficient allowances available. However, the ISA could form part of their estate and there could be IHT implications.
Your planned contributions are well within the current JISA limits, but this could change in the future. The contributions can be made by you or directly by your relative. Depending on your relative’s financial position, there could be an inheritance tax (IHT) liability on their estate if they gives you the money so it may be preferrable for him to pay directly into the JISAs, in which case there definitely wouldn’t be any IHT implications because the amounts would fall within current gifting rules.
Another option would be for you, or your relative, to invest into a pension with a view to using some of the available tax-free cash to put towards a house deposit or university costs, assuming at the time that you had reached the minimum pension, currently age 55. This would provide additional tax benefits and would give you control but there would be other factors to consider. Paying into pensions for your children is also an option, but unlikely to meet your requirements because the children wouldn’t be able to access the funds until they reach minimum pension age.
By Paul Archer, Kingswood Wealth Planner
For more information, or to talk to us about saving for your children, please get in contact with a Kingswood Financial Planner.
KW Wealth Planning is authorised and regulated by the Financial Conduct Authority.