Investment fund for children

[JapanRed]

I'm primarily asking this question on behalf of my sister-in-law who has just had her first child (3 months ago). However myself and future wife will be thinking about children after our wedding in March so it applies to us too.

What investment funds are out there that can be set up for children, with the aim of getting them a house deposit or paying for university in 18 years time. Risk would be low-medium.

I'm asking from a complete noob point of view as I've done no research whatsoever as yet.

Thanks in advance.

[Ozzie Osmond]

Have a look at ISAs.

Also, consider getting some higher risk investments in there. Playing safe can lead to poor returns.

[rsbmw]

One thing to be careful of, if you put the money in a junior ISA it will be legally theirs to do with as they choose once they hit 18. This means that if they're a heroin addict at the time, or have some gold digging girlfriend/boyfriend they're likely to spunk it all on, tough luck. For this reason I choose to keep the savings in my own accounts so it's up to me when I gift it.

[LordHaveMurci]

rsbmw said:

One thing to be careful of, if you put the money in a junior ISA it will be legally theirs to do with as they choose once they hit 18. This means that if they're a heroin addict at the time, or have some gold digging girlfriend/boyfriend they're likely to spunk it all on, tough luck. For this reason I choose to keep the savings in my own accounts so it's up to me when I gift it.

We have Investment Trusts for this very reason.

[williaa68]

I did something similar with Foreign & Colonial when my kids were little. £100 a month, has amounted to a reasonable sum over the last ten years. Very straightforward to do either as a bare trust or junior ISA. Fees are low.

[The Moose]

williaa68 said:

I did something similar with Foreign & Colonial when my kids were little. £100 a month, has amounted to a reasonable sum over the last ten years. Very straightforward to do either as a bare trust or junior ISA. Fees are low.

If you don't mind me asking, that's £12,000 contributions. What is the fund worth now?

[Craikeybaby]

I looked at this earlier in the year before my son was born.

I was looking at Junior ISAs, butdecided that I wasn't 100% happy with the money going straight to my son at 18 - I remember what I was like at 18! In the end I increased what I pay into my own stocks and shares ISA, but diverted some into a different fund for him. I will re-evaluate this when "his" fund is nearing the JISA annual limit, as up until that point I can always transfer it into his name.

FWIW I have gone with a riskier fund than I use (80% equities) on the basis it is being invested for 18 years.

[mondayo]

We have twins and various relatives gave some cash when they were born. We ended up opening Halifax accounts for them, as they were offering 6% interest at the time.
As others have mentioned, at 18 they can access any savings/investments you've made on their behalf. Therefore our two now have a bit of money they'll get when they're 18, which they can do with what they like.
We moved house last year, so currently have a large mortgage , so the best thing to do with our money was pay off our mortgage ASAP and then use our savings/investment as they get older. Plus they potentially will inherit money when/if grand parents die.....

[C0ffin D0dger]

rsbmw said:

One thing to be careful of, if you put the money in a junior ISA it will be legally theirs to do with as they choose once they hit 18. This means that if they're a heroin addict at the time, or have some gold digging girlfriend/boyfriend they're likely to spunk it all on, tough luck. For this reason I choose to keep the savings in my own accounts so it's up to me when I gift it.

This ^

Max out your own tax free savings vehicles first.

[BoRED S2upid]

mondayo said:

We have twins and various relatives gave some cash when they were born. We ended up opening Halifax accounts for them, as they were offering 6% interest at the time.
As others have mentioned, at 18 they can access any savings/investments you've made on their behalf. Therefore our two now have a bit of money they'll get when they're 18, which they can do with what they like.
We moved house last year, so currently have a large mortgage , so the best thing to do with our money was pay off our mortgage ASAP and then use our savings/investment as they get older. Plus they potentially will inherit money when/if grand parents die.....

They don't offer 6% anymore.

[anonymous-user]

The Moose said:

williaa68 said:

I did something similar with Foreign & Colonial when my kids were little. £100 a month, has amounted to a reasonable sum over the last ten years. Very straightforward to do either as a bare trust or junior ISA. Fees are low.

If you don't mind me asking, that's £12,000 contributions. What is the fund worth now?

2 days later and no response so Will is still crying, or still counting depending which way it went ??

[mondayo]

BoRED S2upid said:

mondayo said:

We have twins and various relatives gave some cash when they were born. We ended up opening Halifax accounts for them, as they were offering 6% interest at the time.
As others have mentioned, at 18 they can access any savings/investments you've made on their behalf. Therefore our two now have a bit of money they'll get when they're 18, which they can do with what they like.
We moved house last year, so currently have a large mortgage , so the best thing to do with our money was pay off our mortgage ASAP and then use our savings/investment as they get older. Plus they potentially will inherit money when/if grand parents die.....

They don't offer 6% anymore.

Indeed, it was great whilst it lasted....nice and easy to do.

Personally it's not worth me saving money at the moment....I either invest or pay off mortgage, or both.

[The Moose]

speedyguy said:

The Moose said:

williaa68 said:

I did something similar with Foreign & Colonial when my kids were little. £100 a month, has amounted to a reasonable sum over the last ten years. Very straightforward to do either as a bare trust or junior ISA. Fees are low.

If you don't mind me asking, that's £12,000 contributions. What is the fund worth now?

2 days later and no response so Will is still crying, or still counting depending which way it went ??

To be fair, he may not wish to divulge which is fair enough.

[JapanRed]

Thanks for all the replies. Food for thought and I will pass the info on.

[Rangeroverover]

My godson's parents put a 10,000 deposit down on a studio flat when he was born, any cash presents go to paying off the mortgage, the rental income in its entirety goes to overpaying the mortgage. The plan is that by the time he is 18 it will be paid off.

They are hoping that in a few years there will be enough equity in it to fund a deposit on another small property. I have no idea what they have done re tax/trusts etc.

The plan is when he is old enough/responsible enough to be a householder it/them can be sold to provide a substantial deposit on a proper house. I have discussed it with my godson at length, as he is only 5 he didn't really grasp the concept too well but it seems an OK plan.

[Jon39]

This was done successfully for our own children.

One point that helped, was the annual gifts of money did not come from parents (in this instance it was grandparents). That means the childrens own personal allowances were available and therefore no tax on income. Even a one year old child has teir own personal tax allowance. You could even reclaim the tax credits deducted on dividends received, but those happy days have long gone unfortunately.

We just purchased a selection of big company shares directly, and the holdings remained mostly unchanged. Designated accounts were used for those purchases (ie. Parents Name A/C Childs Initials).

After 18 years, the funds and annual income were fairly substantial. As it turned out the capital was not needed, and the by then grown up children, kept those funds as the start of their own investment portfolios.

With an investment period as long as 18 years, there is a very good likelihood, that directly held equities will out perform other types of investment, especially including the dividend income.

Potential liability to Capital Gains Tax will accumulate (especially now that Indexation Relief as ended), but unlike property investments, it can be managed by annual part sales and moving into ISAs.

Edited by Jon39 on Thursday 20th October 22:58

[Jon39]

Rangeroverover said:

The plan is when he is old enough/responsible enough to be a householder it/them can be sold to provide a substantial deposit on a proper house. I have discussed it with my godson at length, as he is only 5 he didn't really grasp the concept too well but it seems an OK plan.

Capital Gains Tax could be te spoiler of this long-term plan.
I have a property which I refuse to sell, because it would trigger an enormous CGT bill, now that the tax has also to be paid on inflation.

In contrast, long-term equity investment allows part sales at any time, to use the annual CGT allowance, and they can be kept in an ISA wich eliminates CGT liability entirely. The CGT liability difference can be enormous with long-term transactions.