Question
I want to invest £5000 for my 10 year old granddaughter and want it to be in an account designated in her name for IHT puposes.
I have decided to invest in a 2 year fixed account and found the bank Aldermore paid a competitive rate but after waiting about 10 minutes for them to answer my call I was told that these accounts are only available for people over 18 years of age. They said they would transfer me to someone else but after waiting a further 5 minutes I gave up.
Would you kindly advise if there are any banks who will accept investments for children in designated accounts?Answer
Designated accounts and inheritance tax often cause confusion. As designating an account will usually mean you retaining ownership until it's eventually passed to your granddaughter (when she reaches 18) the money will be viewed as yours until then (i.e. it's not an irrevocable gift). This means it will only be treated as a gift when your granddaughter reaches 18 and it'll take a further seven years before the money falls outside of your estate.
To get the money out of your estate (and avoid inheritance tax) you'll either need to gift it outright or gift it into some type of trust of which your granddaughter is the beneficiary - either way the gift will be viewed as a potentially exempt transfer and fall outside of your estate provided you live for at least seven years thereafter.
Bare trusts are a straightforward type of trust often used for this purpose. Once the money is gifted into a bare trust your can no longer take it back (i.e. it's irrevocable), but you can become a trustee and retain legal control (i.e. decide where it's saved/invested) until the money automatically passes to your granddaughter when she reaches age 18.
The trouble is, most banks and building societies don't allow their personal accounts to be held in bare trusts - as you've found out.
I've looked at a few of the major banks and building societies and haven't managed to find a competitive (adult) savings account that can be held in trust [If any readers know of one them please post details below].
You'll probably have more joy looking at children's savings accounts as these are more likely to be available within a bare trust. Northern Rock currently offers a 'Little Rock Fixed Rate Bond Issue 2' paying 4% until 1 October 2013 and appears to be available within a bare trust.
I have to say I've always found the whole notion of designated accounts and bare trusts incredibly vague and generally misunderstood, so it's likely lots of innocent mistakes go unnoticed by HMRC. However, it's always a good idea to try and do the right thing, so if HMRC ever does come knocking your books will be in order.
I want to invest £5000 for my 10 year old granddaughter and want it to be in an account designated in her name for IHT puposes.
I have decided to invest in a 2 year fixed account and found the bank Aldermore paid a competitive rate but after waiting about 10 minutes for them to answer my call I was told that these accounts are only available for people over 18 years of age. They said they would transfer me to someone else but after waiting a further 5 minutes I gave up.
Would you kindly advise if there are any banks who will accept investments for children in designated accounts?Answer
Designated accounts and inheritance tax often cause confusion. As designating an account will usually mean you retaining ownership until it's eventually passed to your granddaughter (when she reaches 18) the money will be viewed as yours until then (i.e. it's not an irrevocable gift). This means it will only be treated as a gift when your granddaughter reaches 18 and it'll take a further seven years before the money falls outside of your estate.
To get the money out of your estate (and avoid inheritance tax) you'll either need to gift it outright or gift it into some type of trust of which your granddaughter is the beneficiary - either way the gift will be viewed as a potentially exempt transfer and fall outside of your estate provided you live for at least seven years thereafter.
Bare trusts are a straightforward type of trust often used for this purpose. Once the money is gifted into a bare trust your can no longer take it back (i.e. it's irrevocable), but you can become a trustee and retain legal control (i.e. decide where it's saved/invested) until the money automatically passes to your granddaughter when she reaches age 18.
The trouble is, most banks and building societies don't allow their personal accounts to be held in bare trusts - as you've found out.
I've looked at a few of the major banks and building societies and haven't managed to find a competitive (adult) savings account that can be held in trust [If any readers know of one them please post details below].
You'll probably have more joy looking at children's savings accounts as these are more likely to be available within a bare trust. Northern Rock currently offers a 'Little Rock Fixed Rate Bond Issue 2' paying 4% until 1 October 2013 and appears to be available within a bare trust.
I have to say I've always found the whole notion of designated accounts and bare trusts incredibly vague and generally misunderstood, so it's likely lots of innocent mistakes go unnoticed by HMRC. However, it's always a good idea to try and do the right thing, so if HMRC ever does come knocking your books will be in order.
Read this Q and A at http://www.candidmoney.com/questions/question280.aspx
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