Children and tax

ISAs

Children under the age of 18 can't hold stocks and shares ISAs (though over-16s can hold a cash ISA), so a stocks and shares ISA investment has to be in your own name using your own savings allowance. As such, you may want to consider other options.

Tax allowances

From birth, children have their own personal allowances for income tax and capital gains tax reliefs and exemptions.

Income tax

In theory, children can have an income of up to the value of their annual personal tax allowance and not pay any tax. However, if you are a parent and buy your unmarried child an investment that earns more than £100 a year, all the income is taxed as yours. This £100 limit applies separately for each parent, and for each child. When the child turns 18 or marries, any income from then on is treated as the child's own. All income that is generated from gifts from people other than the child's parents is treated as the child's.

Capital gains tax

Both children and adults have an annual exemption for capital gains made in the tax year. A financial adviser or HM Revenue and Customs can help explain these in more detail.

Inheritance tax

A child may have to pay inheritance tax on money given to them if the donor dies within seven years of making the gift. However, various kinds of tax relief are available.

For example, any individual can make monetary gifts from their normal expenditure without inheritance tax consequences, subject to certain conditions. A financial adviser or HM Revenue and Customs can give you more information on this.

Children under the age of 18 can't manage their own assets and, for this reason, gifts to a child can be held under one of Fidelity's trusts. An example of this is a bare trust. This is an arrangement whereby the trustees, often the parents, have day-to-day control of the assets but the assets belong to the child, who is taxed.

When a child reaches 18 years of age, he or she is entitled to take the assets into their own name. If you're interested in such an arrangement, or any other trust, consult your legal advisers.

The value of tax savings will depend on your individual circumstances and all tax rules may change in the future.