Ask Sindie: Who can you trust with a baby's shares?
The best ways to invest for children... And beware of the 'boiler room' scams
Sunday 11 December 2005
Q: I was asked to be godfather to a friend's son and, rather than the usual gifts, I thought I'd give him something he can use in the future - and have settled on £1,500 in shares.
After all, they might be worth a lot more in 16 years' time.
But do I just buy the shares for him and hold them until he's 18, or is there some kind of trust I can put them in? Also, are there any tax issues I need to be aware of?
A: Trusts have been around for hundreds of years as a way of protecting shares, money, funds or property from the taxman, and also of keeping financial assets that might otherwise be spent out of the way of temptation.
They surged in popularity during the 1980s as the privatisation of companies such as BP and BT encouraged parents to set up trusts for their children and put in some of the shares.
Today, there are scores of different trust classes, each offering different kinds of tax break.
In your case, you will probably want to go for the most basic: a "bare" trust. This is created when you buy the shares and put them in your godson's name.
When he reaches the age of 18, all income and capital within the trust will pass to him and you won't have any control over what happens to the money, says Paul Falvey, a partner at accoun- tants Grant Thornton. "The trust's assets will legally belong to the named person."
As for tax concerns, any growth in the value of the shares inside the trust is treated as your godson's. And assuming he doesn't have a whole host of generous benefactors offering large share portfolios, it's highly unlikely his annual capital gains tax allowance - currently set at £8,500 - will be broken when he comes to cash in his investment.
Although the act of putting the shares in your godson's name is enough to create a trust, it's better to formalise the arrangement to avoid any disputes that may arise in later years.
"You could get a simple deed drawn up at a solicitor - at a cost of a couple of hundred pounds," explains Mr Falvey. "Alternatively, you could simply write a letter to your godson explaining that the shares are his when he turns 18, and that he can do what he wants with the money."
If a bare trust doesn't appeal, you could consider an "accumulation and maintenance" (A&M) trust, which gives you greater control over the money. Your godchild must wait until he's 25 before he has the right to receive any income (built up from share dividends) from the trust's assets - and you can still decide what to do with the original investment.
With an A&M trust, though, there is a price to pay: the trust's income and any capital gains will be taxed at 34 per cent.
A discretionary trust will give you the most control over your money. You can actually change the beneficiary if, say, you fall out with your friend and no longer want to give the money to your godson.
If you are considering setting up anything more than a bare trust, make sure you visit a financial adviser or tax planner to sort out the appropriate structure and to plan for the costs. Expect to pay at least a few hundred pounds, depending on the complexity of the trust.
Finally, it is worth noting that there are four key elements to a trust: the individual who puts the money or assets in (settlor); those who hold it (trustees); the beneficiaries; and the trust itself. And don't forget, you can choose the trustees and be one yourself.
Q: My wife has been called three times in the past couple of weeks by some sort of investment broker selling shares in a fledgling company called A-Chemstyle (or close), which is apparently involved in the chemicals industry.
I've checked on the internet, curious about this "new" company and why the broker has targeted us. I could find nothing.
Is this a scam? We don't plan on doing anything but I am intrigued.
A: This has all the hallmarks of a classic "boiler room" scam - usually run by an overseas outfit selling shares in non-existent or worthless companies to unsuspecting individuals.
In most cases they ask for a small minimum investment and then convince you to hand over a great deal more, before vanishing with your money.
Without the name of the broker that is trying to sell you stock, it is impossible to check the Financial Services Authority's website ( www.fsa.gov.uk). This has a list of companies that have fallen foul of the regulator in the past and are not authorised to offer goods or services in the UK.
Next time they ring, firmly decline the offer. These scams always end in tears.
If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email email@example.com. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 All Blacks Aaron Cruden misses New Zealand flight after drinking session, has brilliant excuse
- 2 Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
- 3 'F*ck it, I quit': TV reporter Charlo Greene quits live on air in spectacular fashion
- 4 Alicia Keys leaks nude photo 'to create a kinder and more peaceful world'
- 5 Clothes store Joy angers mental health campaigners with Twitter exchange on bipolar disorders
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...
Day In a Page
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize