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Banking on your child’s future

By RAOL RUIZ MARTINEZ, Investment Adviser for Finesco Financial Services Ltd.

BUYING A financial product to help secure your child’s future is not exactly the stocking filler you thought you would be thinking about this year. However, this is exactly what you should be contemplating when you go to sit down and enjoy their nativity play or carol service.

Planning for your child’s future takes careful consideration. School or university fees are a top concern among most parents. Savings and banking for children is a recognised financial area in the UK. Here in Portugal there are certain banking facilities available for children offered by most banks. Like such services in the UK, where there is daily access to money via a current account or savings held on deposit, there may very well be a withholding tax, which is normally levied on the parent. At this point it would be wise to talk specifically about “unseen” taxes and charges with a personal contact at your chosen bank.

There are numerous investment vehicles for the UK tax resident, for example, the Child Trust Fund, NS&I products, ISAs and Regular Premium Savings Endowment Policies that allow you to save and manage your child’s money in a tax efficient manner. These facilities are not always available or simply ineffective as UK investments to those residing in Portugal and so the question you should be asking is: “What is available for the tax resident in Portugal that will help me provide for my child’s future?”

For the foreign resident in Portugal, one normally associates the “savings” route with gifts from grandparents to their grandchildren or cash given by parents from their own long-term savings.

A single lump sum investment can be held within an offshore single premium bond, written as a whole of life (or joint lives assured) policy, with the sole objective to achieve real capital growth over the medium to long term period of five to 10 years, or more. At inception, it can be set up by the parent or grandparent without the cost burden of a trust, simply by placing the child’s name as a secondary policy holder. Then, when the child has come of age, the investment can be transferred exclusively into the child’s name or not, depending on the child’s deemed responsibility as viewed by the donor(s).  

A similar arrangement can be operated using offshore collective savings schemes, such as Open Ended Investment Companies (OEICs), where there is the facility to invest both a lump sum and regular monthly amounts. These sorts of savings vehicles offer convenient, low-cost access to tax advantageous plans and offer good growth prospects, while keeping it simple and the paperwork to a minimum, an important factor. Plans are usually offered by well-known “leading brand” companies and have the benefit of UK regulation as well.

There are advantages and disadvantages in all products. Every parent wishes to correctly plan and minimise any future financial burden, for example from university fees. Plan holders, parents and grandparents alike, should always be cautious and well advised as to the implications of these products on their tax position here in Portugal.

What is the right plan for you? Well that depends on your personal circumstances and what you are trying to achieve. There is no substitute for professional, independent financial advice tailored to suit your particular needs.

Finesco Financial Services Ltd is authorised and regulated by the Financial Services Authority (FSA). Some of the services provided are not regulated by the FSA because they are not included within the Financial Services and Markets Act 2000. Raoul Ruiz Martinez is based in the Algarve office of euroFINESCOs.a. and is regulated to advise on capital investments in both the UK and Portugal. He can be contacted on 289 561 333 or e-mail [email protected]