Investing for Children
Children are likely to face significant financial pressure as they enter adulthood. The spiralling cost of university fees has led to a situation where it is almost impossible for children to attend higher education courses without the financial support of parents and grandparents or by incurring immense debt.
Beyond university the financial pressure continues; significant sums are required to take the first step onto the property ladder, with the cost of houses being on average five times the average first time buyer's salary – to put this into perspective traditionally mortgage lenders will allow a single person to borrow approximately 3.5 times their income to buy a property. For this reason it is unlikely that young adults will be able to take on the financial burden of purchasing property without the help from parents or grandparents. In conclusion, student debt, mortgage payments, the cost of starting a family, combined with life's inevitable expenditures (driving lessons, gap years, weddings etc.) will inhibit future generations from saving for their retirement, which could consequently plunge them into poverty in their old age.
Saving options
Junior ISA
Please visit our Junior ISA page for full details.
Unit Trust/ Investment Fund with account designation (UT/OEIC)
This enables you to invest on a child's behalf in such a way that they become the beneficial owners of the shares (i.e. they will benefit from all the income and capital growth). Funds held in a “designated” account are not held by the child but are the sole ownership of the parent or grandparent. Designating a fund only provides the intention to pass the funds on to the child. Setting up designated accounts on the Cofunds platform couldn’t be easier, simply fill in an investment funds application form and choose to hold units in your own name and “designate” them to the child on whose behalf you are holding them by adding the child's name or initials to the form.
Advantages
- Greater control - if the child is not ready to handle the money at 18 years of age, the parents or grandparents are under no obligation to hand over control of the funds to them.
- Flexible - parents can dip into the funds if there is an unforeseen need for the money.
Disadvantages
- Savings may be liable to tax - parents need to be aware that any capital gains made, above the annual allowance, will be subject to Capital Gains Tax (CGT) at the parent's own rate and any income earned over £100 per year will be added to their own tax position. However, the £100 rule does not apply for grandparents and family friends who may give as much as they like without income earned being added to their own tax position.
Child Trust Fund
The Government has recently announced plans to phase-out the Child Trust Fund and as such, we can no longer accept new applications. However, existing holders can still benefit from our 2% discount on top-ups into the Child Trust Fund Non-Stakeholder Baby Bond Choice account from the Children's Mutual. We are also able to accept transfers from other providers.
The annual CTF allowance has be increased, in line with the Junior ISA, to £3,600.
The Baby Bond Choice account is a non-stakeholder account offering investments from four different fund managers, namely Henderson, Insight, Invesco Perpetual and UBS. Remember, the value of shares can go up or down, and you can get back less than you paid in.
Funds Available
| Fund Name | CFS Risk Rating (Out of 10) |
CFS Comment |
| Henderson Cautious Managed | 3 |
This fund aims to provide a combination of income and long-term capital growth. Investment will be in a diversified portfolio of equities, bonds and other related investments. Central to the investment process is the flexibility to conservatively adjust the balance between bonds and equities to reflect changing market conditions. 54% of the fund is in fixed interest securities with a further 38% in UK equities and the rest accounted for by money markets. |
| Henderson European Selected Opportunities | 6 |
This fund aims to achieve the highest possible capital growth from an actively managed portfolio of European investments. The investment process is based upon finding companies, the future prospects of which have been underestimated and avoiding those where they may disappoint. |
| Henderson US Growth | 7 |
This fund aims to achieve a long-term return greater than the return typically achieved from North American equity markets. Currently the largest sector holdings is 20% in financials. |
| Insight Foundation Growth | 4 |
This fund aims to achieve long-term capital growth through investing in a representative sample of stocks intended to replicate the returns of the FTSE All Share Index. |
| Insight Evergreen | 7 |
This fund aims to invest in companies across the globe, which meet ethical criteria. It currently has around 50% invested in North American equities. |
| Invesco Perpetual Income | 4 |
This fund aims to achieve a reasonable level of income, together with capital growth. The investment process combines top-down and bottom-up analysis. |
| Invesco Perpetual World Growth | 5.5 |
This fund aims to achieve capital growth from a portfolio primarily of Invesco Perpetual funds. The fund manager aims primarily to deliver performance through stock selection in the underlying funds, rather than through aggressive asset allocation. |
| Invesco Perpetual UK Smaller Companies Growth | 8 |
This fund aims to achieve capital growth with an average yield through a portfolio of investments in UK smaller companies. The investment process combines an analysis of both broad macroeconomic and market trends and individual company-specific developments. |
| UBS Global Allocation | 5 |
This Fund aims to achieve long-term capital growth through active management of a diversified portfolio invested in both domestic and international equities, as well as bonds and units in UK and overseas regulated collective investment schemes. Currently the fund holds 46% in International equities, 34% in UK equities and around 20% in Fixed interest securities. |
| UBS UK Select | 5.5 |
This fund aims to achieve capital growth through a diversified portfolio of UK equities. The largest sector holdings is currently Oil & Gas with around 22% of the fund invested here. |
| UBS Medium Term Fixed Interest | 1 | This fund aims to preserve capital with some capital growth in a portfolio of gilts and debt instruments. It will be predominantly made up of investment grade bonds, but may hold up to 10% in higher risk, non-investment grade bonds. |
Discounts
Unfortunately, we cannot offer discounts on the initial voucher, however we can offer a 2% discount on any lump sum investment of £250 or over and a 2% discount on any regular monthly savings plan. These discounts come in the form of extra shares and act to enhance your child's investment.
There is no personal tax to pay on any growth and the money your child receives when they reach 18 is also tax free as long as they are a UK resident. This is subject to any change in legislation, and dividend income tax credit is not reclaimable.
Forms
Additional Payment - If you would like to make an additional payment to an already existing Children's Mutual CTF Account
If you have any further questions please call or e-mail us and we will be happy to help.
Call us on: 020 7384 7300
Remember! All investments carry some risk. Before going any further, please read the Important Notice below.