I've designated an Investment Account for a child. Who owns it?

Updated: May 26

During the course of our work with clients, it's quite common for parents or grandparents to want to set some money aside for a child. Sometimes this money is formally transferred into a trust for the child, and often a Trust Deed is created which details exactly what can happen to the money and who owns it.


Have you set money aside for a child?

There are many instances, though, of General Investment Accounts (GIAs) being held in portfolios that are designated for a particular purpose, and often this is in respect of funds for minor children or grandchildren. The designation might be in the form of a person's name or initials added to the account details. We recently received an update from Transact, the platform through which many of these accounts are held, who are frequently asked to confirm whether or not such accounts are bare trusts and thus whether the beneficiary of the funds is the taxable entity.


Transact's answer to this was that "we don't know." By this they mean that they are unable to determine who owns the funds because relying on the labelling of the GIA does not explain its tax status. What they don't know is what the intention of the donor(s) was when the GIA was set up and what is evidenced in the donor's records, as this will then indicate how the account should be taxed.


If the donor intended to make an outright gift to the beneficiary at the point it was paid into the GIA, then that is indeed effectively a bare trust. The recipient will be the taxable entity for income and capital gains tax purposes and the funds will form part of the beneficiary's estate. (Note that if the beneficiary is a minor child of the donor and more than £100 of income is generated in a tax year from the investments in the GIA and any other gifts of the parent for this child, the parent will be liable for all the income tax due.)


However, if the funds were placed in the GIA with the intention of giving them to a child or grandchild at some point in the future (depending on how they grow up, etc) then they have not been given away and any income and capital gains are still subject to tax on the parent or grandparent who will continue to keep control of the funds. Where a client has a portfolio that includes a number of GIAs, then the annual reporting will show this client as liable for the income tax due across all the GIAs. If some of the GIAs are actually in respect of bare trusts, then the income in the statement will need to be apportioned accordingly between the client and the beneficiary of any bare trust.


So the tax treatment of designated GIAs on Transact is not determined by the platform but rather by the reason for the funds being invested in them. So has the client given up control of the funds and is holding them as trustee for the beneficiary, in which case it is treated as a bare trust, or have they just notionally set aside the funds with a view to passing them on when they are happy to do so, in which case no gift has been made and the client remains the taxable entity?


It's important to record your intentions in these cases so that there can be no confusion when it comes to who is liable for tax and how much, who owns the asset, and when they are entitled to receive it. These are all issues that your Financial Planner or Tax Advisor will be able to help you with. If you have such a designated account - or are thinking of setting one up - just ask and we'll make sure that it's arranged in the way that best meets your goals for this money.



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