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Tax considerations

Investing for children – what are the tax issues?

The following information is given for general guidance only. For more detailed information on investing for children, Inheritance Tax and Capital Gains Tax (CGT), talk to your local tax office or adviser, or visit HM Revenue & Customs website at www.hmrc.gov.uk.

Tax considerations

Our designated account and bare trust account options have different implications for Income Tax, CGT and Inheritance Tax (IHT) purposes.

Designated account	Bare trust account
You are personally liable for any Income Tax or CGT due.	The money is treated as the child's for CGT purposes, and makes use of their personal CGT allowance. However, you will be liable for Income Tax on any income earned above the £100 per parent threshold.
The account is counted as part of your overall assets and would, therefore, be included in your estate for IHT purposes.	The account is excluded from your personal assets and your estate would not, therefore, have to count it towards any IHT that might be due.

Because children are entitled to their own annual tax allowances income from investments in the account and any capital growth are treated in the same way as for an adult. However, if the child earns income in excess of £100 each tax year from money that you as the parent have contributed, you may be personally liable for Income Tax, as if that income were your own. This £100 threshold applies separately to each parent.

Contributions from other people

Other people can contribute to the child's account and there are no such Income Tax implications on you or them. In these circumstances they will need to bear in mind the potential IHT implications of lifetime gifts. The person making the gift should make it clear the contribution is for your child's account. However, there is no guarantee HM Revenue & Customs would not argue the gift to your child should first be treated as a gift to you, and then as a gift by you to your child. In addition, such a ruling could mean you become liable to Income Tax if it were it to exceed £100 per annum.

Once in the account, any capital gains are dealt with through the child's own annual CGT allowance. The usual rates of taper relief also apply.

Transfering investments

If you transfer shares or other investments into a Junior Investment Account, or sell them and add the proceeds to an account, you should be aware that this may give rise to a CGT and/or potential IHT liability.

The precise value of any tax advantages will depend upon your individual circumstances. Do bear in mind that the basis on which any allowance is applied, and the level of any allowance, can change.

Please bear in mind that your existing provider may also charge you for making a transfer.

It can take up to four to six weeks to process your transfer

Don't forget that the value and income from investments can go down as well as up and you will not be able to deal in your investments during the transfer. Therefore there is the potential that you may have a loss of income / growth whilst the transaction is being completed.

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