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Investing for children

Because of their competitive charges and long-term performance record, investment companies are a good option to consider when you invest for a child

Investing some money – either as a one-off lump sum or on a regular basis – is an ideal way to give a child a head start in life. On this page we look at what to think about and the basic options for your investment.

For more detail of investments and tax implications, download our consumer guide on Investment companies and investing for children

How to invest in shares for children

Children under 18 can’t hold company shares in their own name. You need to hold them on the child’s behalf. You can do this through a wrapper scheme, which will provide you with the paperwork to set this up. Some management companies have plans specifically for children.

You can choose to:

  • hold company shares either in your own name and designate on the application form that you are holding them on behalf of a child (by adding the child’s name or initials to the form)
  • hold company shares in a “bare trust” for the benefit of the child

Investigating the tax implications

When you set up any investment scheme you need to take a close look at the tax situation. This is especially important when you invest for children – the tax implications will affect you, the child and anyone else who contributes to the investment.

One of the most important questions to ask yourself is whether you will have to pay tax on the child’s investment income. This depends on who is contributing to the investment and what their relationship is to the child.

If you decide to make a gift to a child you should be aware of the Inheritance Tax (IHT) implications.

To find out more, download our consumer guide on Investment companies and investing for children or speak to a financial adviser.

Saving for a child’s future

There are special accounts available to give tax breaks when you save for a child’s future. Depending on when the child was born, they might have a Child Trust Fund or be eligible for a Junior ISA. Both of these lock the money away until the child is 18.

If your child is not eligible for a CTF or a Junior ISA, or you don’t want to lock the money away for so long, there are other options, such as using an investment company scheme.

Any investment company can be used to save for a child via a wrapper scheme but some management groups offer specific investment schemes for saving for children.

See a list of management groups offering children’s investment schemes

You can also open a pension scheme for a child – this locks the money away until the child is at least 55 years old.

Junior ISAs

  • The Junior ISA (JISA) is designed to let you save for a child in the long-term. It was launched on 1 November 2011. It’s available for children under 18 born after 3 January 2011 and before September 2002. Those born between those dates were eligible for CTFs.
  • As with an adult ISA, a Junior ISA is tax-free.
  • For the 2018-19 tax year (6th April 2018 to 5th April 2019), friends and family can contribute up to £4,260 into a child’s JISA. Children can have one cash and one stocks and shares JISA at the same time but this doesn’t affect the limit – the £4,260 must be split between them.
  • The money in the account belongs to the child, and is locked in until the child reaches age 18. After that the money is moved into an adult ISA. It won’t be subject to income or capital gains tax.

Child Trust Fund

  • The Child Trust Fund (CTF) was a Government-sponsored saving scheme that has now been replaced by the Junior ISA. No new CTFs can be set up, but current funds are still valid.
  • Originally, each child born on or after 1st September 2002 was eligible for a voucher from the Government for at least £250 to start the account (£500 for children from low income families). This was topped up again with the same sum as the child reached age 7.
  • Government contributions for CTFs stopped on 1 January 2011, but friends and family can still pay money into the account up to a limit of £4,128 per year – the same as for a Junior ISA. Also like ISAs, the account is tax free.
  • The money in the account belongs to the child, and is locked in until the child reaches age 18. After that the money is moved into an adult ISA. It won’t be subject to income or capital gains tax.

Child’s pension

  • Child’s pensions have been available since 2001. They’re like an adult pension – they lock the money away until the child is at least 55.
  • In most cases, you can contribute up to £3,600 gross (£2,880 net) into the pension each year and get tax relief. You can pay more, but you won’t get tax relief on the extra.

Saving for school or university expenses

When you invest for school or university fees you’re trying to achieve a certain level of return within a set time. The Junior ISA and Child Trust Fund, which lock in the money until the child is 18, aren’t suitable for school fees planning, but might be an option for university fees.

You should start by working out how much money you need, and by when, and then start looking for appropriate investments. This is a difficult and important type of investment – you’re likely to want financial advice.

Why use an investment company to save for a child?

Investment companies are effective and cost-efficient ways to save for children, and mean you can invest in a very wide range of options.

Investment companies often let you start by investing small amounts, making them flexible and accessible. You can also choose a level of risk you’re happy with.