If you are a doctor or dentist who is thinking of gifting money to your children or grandchildren that can be used for future expenses such as university fees or the deposit for their first home, there are differing tax efficient investment strategies available. These tax strategies allow you to take advantage of the child’s personal allowance and capital gains tax annual exemption.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
Caution is needed
If you are gifting money to your child, if they are unmarried or not in a civil partnership, great care must be taken round the anti-avoidance rules that exist, particularly if the income generated from the investment exceeds £100 per tax year.
It is always recommended that you seek professional advice from experts, such as ourselves, who have knowledge in this area.
Investment options
This article covers differing options for parents or grandparents:
Investing in the name of the child
It is possible to open an account with a bank or building society in the name of the child. The age you can do this varies per institution. If you are thinking of gifting a large sum of money, accounts are usually opened as ‘designated accounts’ or ‘trustee accounts.
A designated account may be seen as a bare trust, so the person who created the account may have to demonstrate their intention of making an irrevocable gift.
It’s important to note that if the person who put in the gift is the parent of the child, and the income made from the gift exceeds £100 in a tax year, it will be assessed on the parent, and thus eliminating the potential tax saving.
Junior ISA
Junior ISA’s were introduced in November 2011 and are available for anyone under 18, who is a UK resident and who does not hold a Child Trust Fund. You are not able to set up a Junior ISA and a Child Trust Fund, so before opening any of these it is important that you consider why you are gifting the money.
A Junior ISA allows you to invest up to £4128 per child for 2017/18. This can be invested as cash or in stocks and shares, tax free up to the age of 18. Once they reach the Junior ISA will transfer to a normal ISA.
Registered pension
A usual option, but it is possible to contribute into a registered plan for a child. The major downside is that they won’t be able to access it until they are 55.
The advantage is though, a net contribution of £2880 would make £770 in tax relief, making a total investment of £3600. This is the gross annual contribution that can be paid into a registered plan on behalf of a UK resident with no other form of earnings.
National Savings and Investments Children’s Bond
National Savings and Investment Children’s Bonds were issued to a child but controlled by the parent, guardian or grandparent until they reached 16.
The bond was intended to be held for a minimum of five years. However, it could be cashed in earlier but it was subject to 90 days interest on the amount invested.
At the end of September, the bonds were replaced by a Junior ISA. The Junior ISA can be opened online with a minimum deposit of £1.
Want to invest wisely for your family?
Dental & Medical Financial Services have been helping doctors and dentists with family financial planning for over 25 years.
Tel: 01403 780 770