SEARCH, INDEX, UPDATES, CONTENTS, IDEAS, INVESTMENTS FOR CHILDREN
The Income Tax Problem
There are specific income tax provisions that income in excess of £100 per
annum arising gifts from a parent is taxed on the parent. This applies to
direct gifts and to income arising from a settlement by the parent.
Alternative number 1 - Grandparents
Wealthy grandparents can make gifts to grandchildren and the income arising
is that of the grandchildren against which their personal allowance (£4,535 in
2001/02, £4,615 in 2002/03) can be set. Tax deducted on dividend income cannot be reclaimed,
but the allowances can be used against rental income, and tax deducted from
other savings interest can be reclaimed.
Tax on income (other than dividends) from a settlement by grandparents can be reclaimed.
Alternative number 2 - Capital Gains
As well as an income tax personal allowance (see above), every child has a Capital Gains Tax Annual Exemption (£7,500 per
individual in 2001/02). This is available against gains arising on funds
previously gifted by parents.
One investment which might be considered is a Second Hand Endowment Policy (SHEP). There is a market in SHEPs and it is possible to build up a portfolio of such policies which planned maturity dates which make maximum use of the Capital Gains Tax Annual Exemption. Maturity values, including terminal bonuses are not guaranteed, but they are a comparatively predictable investment. See Links for information about dealers.
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