Investing for children

Investing for a child under 18 means making decisions based on slightly different criteria than for an adult.

Not all investments allow children to invest in their own names. Some have age limits - 7 and 16 are common trigger ages. Some investments are not available at all to children under the age of 18 while others are offered only to children and may include perks and free gifts.

Children's investments will also be influenced by the child's or in some cases the parent's tax position. However, any child under the age of 18 who marries ceases to be taxed as a child. Income from investments given to a child by a parent of more than £100 a year are taxed as part of the parent's income.

Any other income is taxed as the child's whether it is gifts from other members of the family, earnings from part-time work etc. No tax is payable providing the income does not exceed the personal allowance .

Assuming your child is a non-taxpayer, it makes sense to consider investments which pay a return before tax, such as most National Savings investments or bank or building society accounts (provided you have filled in form R85, available from your local branch).

If there is any likelihood of tax being payable it may make sense to invest gifts from parents separately from other gifts and to keep a record of gifts made.

Giving money to your children during your lifetime could save inheritance tax ( IHT ). It makes sense to take advantage of the tax-free ways of handing money to your children during your lifetime.

You may also, if you wish to, invest money for your children without them being able to get their hands on it for the time being. This involves establishing trusts. If you are considering this, you should consult a professional adviser such as a solicitor or accountant.

Meanwhile, the advent of child trust funds , where you, as a parent, are issued with a voucher to invest on your child's behalf, will require careful consideration as to where that money is invested.

Last Updated: November 2007 © Moneyextra.com

Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.