Young children can’t hold shares in their own name, so instead you can set up a savings scheme on their behalf. You can choose to hold investment company shares:
This means that you hold the shares in your own name, but designate them as being for your children. One advantage is that you keep control of the shares, and can decide when you hand them over to your children. You can also access the investments if you need to in an emergency.
This is a simple form of trust which can be set up easily and quickly. The shares are legally held for the benefit of your children and so you have no entitlement to the income or proceeds. You cannot change your mind and will eventually have to hand the shares over to your children. You should also make sure you understand the tax consequences (see the 'Things to consider' section later in this guide).
If you want to have more control over what your children can do with the money, you could consider setting up a more formal trust. You should take legal advice before considering this option, and you will need to pay a solicitor for their time.
Introducing your children to the savings habit early could really pay off in the long term
A Junior ISA (JISA) is a special savings account for children with tax benefits. JISAs allow you to save using two main types of investments:
This includes bank and building society savings accounts and National Savings. These provide a very safe home for your money but can offer limited income and growth prospects.
This includes shares and collective funds such as investment companies, unit trusts and other similar funds. These are more risky, but can offer the chance of better returns over the long term. If you cannot afford to lose the money you put into an ISA, or think you might need your money quickly, you should not invest in investment companies and should probably stick with cash investments.
It may seem odd to think about a pension when they are still so young, but research shows that many people leave starting a pension too late. Getting your children started in the pensions habit early could really pay off in the long term. As the money will be locked away until they are at least 55, it will be invested for the very long term, which is where investment companies’ track record is so strong.
If, later in life, your children don’t have access to a good company pension scheme (for example, because they are self-employed), they will have a pension account ready and waiting for them to contribute to, with your contributions giving them a head start. You can pay in up to £2,880 each tax year on behalf of a child with the government adding up to £720 in tax relief, making £3,600 in total. The investments are free from UK income and capital gains taxes.
You can find details of investment schemes for children on the AIC website