Guide to investments for children

If you’re a parent, grandparent, aunt or uncle, you could easily make an investment in a child’s future.

You can invest a lump sum, put away a regular amount each month, or do both. It’s usual to give the child access to the money when they reach age 18 or 21, but the money can usually remain invested for longer.

The value of the investment you make could have a big impact on the child’s lifestyle. They can use the money to:

• Fund a university education – university fees, student living and the costs of accommodation can all add up.
• Enjoy a gap year – after school, college or university, many young people opt to volunteer abroad, or simply see some of the world. The returns from an investment could help make this possible.
• Put down a deposit – a maturing investment could help a child take their first step on the property ladder.

Every child born in the UK on or after 1 September 2002 is eligible for a Child Trust Fund. This tax-efficient plan is boosted with contributions from the government. Read about using Child Trust Funds.

In addition to Child Trust Funds, there are other types of investment plans suitable for child investments and savings.

These are offered by banks and building societies. They pay a fixed or variable rate of interest, and are an easy way to save for the future. They could pay interest tax-free, if the child or their parent fills out form R85.

A child can have a cash ISA once he or she reaches age 16. They can invest up to £3,600 every tax year and the interest is automatically paid tax free.

These come from National Savings and Investments and can be bought for a child under the age of 16. The returns are tax free but you have to leave the money for at least five years.

Collective investments such as certain unit trusts, investment trusts and OEICs can also be held on behalf of a child. These invest in a wider range of assets, such as stocks and shares and bonds. They offer the prospect of higher returns but are riskier than cash based investments.

These days, many people use trusts to invest on behalf of their children and grandchildren. Trusts could help preserve your own wealth, create financial security for the child, and minimise inheritance taxes.

• You can place some investments into a trust. The investments are handled by a trustee - a person with some experience of handling money would normally carry out this task
• The child can be prevented from spending the investment recklessly
• The trust fund assets don't form part of the parent's or grandparent's estate for inheritance tax purposes

Once you put money into a trust, you may not be able to get it back - even if you need it. You should always seek professional advice before doing this.

A Child Trust Fund is a tax-efficient way of saving for your children.

The Government sends you a voucher worth £250 before your child’s first birthday. You can use the voucher to open a Child Trust Fund account – and it could be boosted to at least £500 if you’re on a low income.

The Government will pay a further £250 (or £500 if you’re on a low income) on or around your child’s seventh birthday. On top of this, you can invest up to £1,200 a year into the account.

The money and the account belong to your child – this means they can withdraw the money any time after they reach age 18.

We offer a Stakeholder Child Trust Fund. This means that your child’s fund is invested in a range of stocks and shares, cash and bonds. This type of investment provides the potential for good growth over the 18 year term. We manage risk by moving money into lower risk investments, like cash, from the age of 13 until the fund matures.

• When can I start a Child Trust Fund (CTF)?
• Does my child have to pay income tax on any interest earned?
• How much can I invest on behalf of a child?
• What about income tax and inheritance tax?
• I'm looking for more adventurous investments such as individual company shares. Where can I get help?
• Where can I get advice about investing for children?

A. If you’re receiving child benefit, you’ll automatically receive a Child Trust Fund voucher shortly after the birth of your child. Simply take the voucher to the company you want to open the Child Trust Fund account with. If you don’t open a Child Trust Fund account within 12 months, the Government will open an account for you.

A. It depends on the type of product and the amount of interest earned. Remember, children are entitled to a personal tax allowance in the same way as adults.

A. If you invest in a Child Trust Fund, the limit is £1,200 a year. There may be limits on other types of investment. It is recommended that you refer to product specific information for further details.

A. This is a complicated area. It’s a good idea to get professional advice if you are concerned about tax liabilities.

A. NatWest Stockbrokers offer a range of services to investors who want to purchase company shares for children. NatWest Stockbrokers

A. NatWest’s Financial Planning Managers can give you a no obligation financial planning review. They’ll look at any existing investments, your attitude to risk and the investment aims, and give you an honest and professional appraisal of the investment products that would suit best.