DIY Investor Magazine
/
December 2015
22
ACCOUNT TYPE ADVANTAGES
DISADVANTAGES
National Savings &
Investment (NS&I)
Children’s Bonds
•
Tax free
•
Low Risk
•
Maximum £3,000
investment per issue
•
Five-year term with penalties
for early withdrawals
•
Only modest returns
•
Control passes to child at age 16
Designated (named)
Investment Accounts
•
Parent controls
investment decisions
•
Simple to set up & no
extra costs or maximum limits
•
Parents control the assets
& pass them to the child
when they choose
•
No tax benefits - income & capital
gains are taxed, as they are owned
by the account holder
•
No Inheritance Tax exemption
Junior ISA
•
Tax-efficient and flexible
•
A wide investment choice
•
Full control passes to the child
on their 18th birthday (if seen as a negative)
•
Annual limit of £4,080 in 2015/16
Child SIPP
(Personal Pension)
•
No risk of being used
in early adulthood
•
Tax relief on contributions
& investments
•
Cannot be accessed until
the age of 55
•
Annual limit of £3,600 when
investing for a child
NATIONAL SAVINGS & INVESTMENTS
CHILDREN’S BONDS
NS&I Children’s Bonds are cash savings accounts for
children that are exempt from Income Tax on interest
earned and are very low risk as they are guaranteed by
the Government.
These are available for any child in the UK and control
passes to them on the occasion of their sixteenth
birthday. Starting at just £25, the maximum investment
is £3,000 per child per issue in 2015/16 and interest is
typically fixed for five years, with the ability to access
the money at a loss of 90 days’ interest.
With interest rates at historically low levels the biggest
threat to Children’s Bonds is inflation – the rate offered
by the current, 35th issue, is 2.5% p.a. which still
currently makes sense but would risk being eroded
in real terms if inflation nudged up. Investment
companies, banks and building societies offer
children’s savings plans which use a child’s personal
tax allowance, currently £10,500, as an amount they
can earn a year before being taxed.
Each option is explored here in more depth:
