We naturally want to give children a flying start in life:
school fees
a car
the chance to take time off to travel the world
university fees
a deposit for a flat or house
a wedding
a business start-up investment
As a parent, grandparent, godparent, relative, or even a family friend, you may wish to build up an investment for a child's future. Money put aside to help fulfil children’s dreams is one of the best gifts anyone can give.
The longer you can save for a child the better as it gives your investments more time to grow.
You can save regularly on a monthly basis or with lump sums - and there are various ways you can do this. Building societies and banks offer deposit savings accounts that can be opened by a child or by an adult on a child's behalf. They provide easy access and capital security.
If you’re starting early and planning to invest for the next ten or twenty years, it may be worth considering putting some money into the stockmarket. History suggests that over the long term it is one of the best ways to generate wealth. Any stockmarket investment involves risk but over the long term you could expect this to be balanced by the level of return which you may earn.
One of the easiest ways to invest in the stockmarket is through an investment trust where investments are managed by experienced fund managers. Investment trusts can invest in scores and sometimes hundreds of different companies, thus spreading risk across the market at a level unattainable by most individual investors.
Using investment trust saving schemes can be a simple and cost-effective way of buying stocks and shares and is especially useful for regular investment or where small amounts of money are being invested.
Please remember the value of stockmarket investments can go down as well as up and you may not get back the amount originally invested.
You may wish to spread your risk and provide your child with a balanced savings portfolio with some money going into bank and building society deposit accounts and some money going into the stockmarket with a view to superior long-term growth potential.
By opening up a designated plan or setting up a bare trust with SIT's STOCKPLAN: A Flying Start. As STOCKPLAN: A Flying Start is not a CTF product you can use it to invest for a child regardless of when they were born.
Designated plan
A designated plan remains under your control and allows you access to the funds. However, as it is not a bare trust, the investment remains part of the investor's estate for inheritance tax purposes.
Bare Trust
If you want to demonstrate clearly that the money that you give is to be the child’s property, then the simplest way to do this is through a bare trust.
The investment is held by trustees on behalf of the child. It is treated as the child's for tax purposes. You, as the investor, have no legal right to the money and the investment would no longer be part of your estate for inheritance tax purposes as long as either:
you live for seven years after making the gift, or
the contributions are below the annual exemption or within the gifts out of normal expenditure exemption.
You may be one of the trustees. The trustees have legal control over the investment until the child reaches the age of majority. Once set up, a bare trust is irrevocable and you, as the investor, cannot cancel or alter it.
Main differences between a designated plan and a bare trust
Designated Plan
Bare Trust
Held in the investor's name with the child's name designated on the application form
Held in the name(s) of the trustee(s) (which could include the investor) on behalf of the child
The investor has control over the investment
The trustees have control over the investment subject to the terms of the trust
The investor has unfettered access to the investment
The investor has no access to the investment subject to the terms of the trust
The investor can withdraw funds or close the plan
Cannot be revoked by the investor
Will remain part of the investor's estate for inheritance tax purposes
May not form part of the investor's estate for inheritance tax purposes as long as the investor lives for seven years after making the gift
You can invest on a regular or lump sum basis or a combination of both and you can stop and start your investments whenever you like. Furthermore, although STOCKPLAN: A Flying Start is intended as a long term investment vehicle, the money can be accessed whenever you wish subject to the terms of the trust if set up as a bare trust.
Regular investment can start from as little as £25 per month - there is no maximum limit. Lump sums start from £250 - again there is no maximum.
Our approach to charges is simple and transparent. Our charges are among the lowest in the market, which means your money goes further.
No initial charge
The STOCKPLAN: A Flying Start scheme has no initial plan charge.
As with all stocks and shares, there is compulsory government stamp duty of 0.5% on purchases and a different buying and selling price applies. There is also a PTM (Panel on Takeovers and Mergers) levy of £1.00 for any purchase or sale of shares over £10,000.
No annual charge
No annual management fees are paid when you invest through STOCKPLAN: A Flying Start.
As in any public limited company (PLC), the overheads of running the trust are clearly identified as expenses in SIT’s annual report. These expenses are paid directly out of the income of the trust, not levied on the investor. SIT dividends are paid to stockholders after these costs have been met. Please refer to our Key Features documents for details of current expenses and their effect on an investment.
Penalty-free closure
Unlike many schemes there are no fixed investment periods or prohibitive closure penalties with STOCKPLAN: A Flying Start. To withdraw some or all of your funds costs just £11.75 ( £10 + VAT).
If you designate the plan, the registered holder can sell some or all of the STOCKPLAN: A Flying Start holding at any time. All they need to do is telephone, or write to, the Administrator (Halifax Share Dealing Ltd). The withdrawal fee is (£11.75) £ 10 + VAT.
If the plan is set up as a bare trust, the investment cannot be sold until the child reaches the age of majority other than at the discretion of the trustees, for purposes listed in the terms of the bare trust. Sale instructions must be given by the trustees jointly and in writing.
Investors should advise HM Revenue and Customs (HMRC) that a bare trust has been established using form 41 G (Trusts). This form and further guidance can be obtained from the HMRC website www.hmrc.gov.uk/trusts or your local tax office.
Can I use a Child Trust Fund (CTF) voucher to invest in STOCKPLAN: A Flying Start?
STOCKPLAN: A Flying Start is not a CTF product and cannot accept CTF vouchers. However, you can open a STOCKPLAN: A Flying Start on behalf of a child even if you have invested your CTF voucher elsewhere.
Can I vary the amount I put in for my children?
Yes. You can adjust the level of regular payments at any time. You may also invest lump sums - again at any time. There are no maximum limits - only the minimum of £25 for monthly investors and £250 for a lump sum investment.
What happens when the child becomes 18?
At any time after the child reaches the age of 18, the stock accumulated under a designated plan can be transferred to an account in his or her own name, free of charge, by the investor writing to the Administrator.
If the plan is set up as a bare trust, when a child reaches 18 the child can then ask the trustees to hand over the investment and the trustees are obliged to do so.
However, the child may choose to leave all or part of the money invested. In this case the child can opt for the bare trust to continue, or to have the plan transferred into their own name, free of charge, whichever they prefer.
In Scotland the age of majority is 16. If the child then asks the trustees to hand over the investment, it would have to be encashed as STOCKPLAN: A Flying Start cannot be held by anyone under the age of 18.
What are the tax implications?
We recommend you consult your professional adviser or accountant on the tax implications of investing for children in STOCKPLAN: A Flying Start. The information below is for general guidance only and should not be regarded as constituting financial, tax or legal advice.
In terms of a bare trust, HM Revenue and Customs takes into account the source of money invested for a child, if he or she is a minor and unmarried.
If a parent is the source of investment, any income arising from the investment counts as the child's income if it amounts to £100 gross or less per tax year. If this sum is exceeded, all the income will be treated as belonging to the parent for tax purposes and will be taxed at the parent's rate of tax. In the latter case the income would only be treated as the child's once the child reached the age of 18 - or got married if earlier.
However if the source of the investment into the bare trust is another party - grandparent, godparent, other relative, family friend, for example - the income generated is regarded as belonging to the child and would be offset against the child's own allowance limit - which this year is £5,225 (single person's tax-free personal allowance 2007/2008).
All income and capital gains arising from the investment into the bare trust will be assessed as the child’s from age 18; there is no further possibility of the parent being taxed, regardless of who the original investor was. Proper records should be kept by the donors at all times.
What happens when a grandparent opens the account on behalf of the child?
The income would be treated as the child's income and the £100 limit would not apply. The account should, however, carry the child's designation and be run for the child's benefit.
Can setting up a SIT plan help to minimise my eventual Inheritance Tax liability?
For tax purposes setting up a bare trust creates a potentially exempt transfer (PET). In this case, if the donor lives for seven years after making the transfer, it is no longer subject to Inheritance Tax. If the donor dies before the seven year period is completed the funds could be subject to Inheritance Tax if the estate exceeds the nil rate band, currently £300,000 (2007/2008) - but as a 'PET' they are taxed on a sliding scale. This is also the case for a designated plan if, and with effect from, the time that the fund is gifted to the child in the future.
It may be possible to obtain exemption from Inheritance Tax if regular gifts, ie monthly investments, are made to the bare trust and it can be shown that these gifts are 'normal expenditure out of income' and that they do not reduce the donor's normal standard of living.
Gifts to the bare trust up to a total value of £3,000 each tax year, plus any part of the previous tax year's £3,000 that has not been used, may also be exempt.
Inheritance Tax is a complex subject and we recommend you consult your professional adviser or accountant to ascertain your position. Some forms of SIT’s schemes may assist in minimising inheritance tax liabilities; however professional advice should be sought in this regard.
You can apply by completing the Application Form and, if applicable, the bare trust form, both of which can be found at the back of our STOCKPLAN: A Flying Start brochure or by downloading from this website.
The forms should be sent to our STOCKPLAN Administrator, together with your personal cheque, for the lump sum or the first month’s instalment, drawn on an account in your name, payable to SIT STOCKPLAN, and a completed Direct Debit instruction (if applicable). Please note STOCKPLAN: A Flying Start cannot accept Child Trust Fund (CTF) vouchers.
Please don’t forget to read the Key Features and Terms and Conditions that apply to STOCKPLAN: A Flying Start before completing your application form.
The Administrator will send confirmation of receipt of your STOCKPLAN: A Flying Start application and, in the case of setting up a bare trust, return the trust form as well as the confirmation to the first named trustee to be kept in a safe place.
How to make additional lump sum investment into STOCKPLAN: A Flying Start
Additional lump sums (minimum £250, there is no maximum) can be added at any time.
Simply write to the administrator quoting your STOCKPLAN reference number and enclosing a personal cheque drawn on an account in your own name made payable to SIT STOCKPLAN. Alternatively, you can telephone the Administrator on 0845 850 0181 to make a lump sum investment using your debit card (Mastro or Delta).
Purchases of stock units are made daily.
SIT STOCKPLAN
Halifax Share Dealing Ltd
Trinity Road
Halifax
West Yorkshire
HX1 2RG
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