Family investments help families achieve their family’s financial goals and dreams. Family investments can do so much for your loved ones, including helping to ensure that you are always prepared for any emergencies that might arise.
| When should I start my family investments? | As early as possible |
| How can I maximise family investments? | Use tax reliefs, exemptions, and annual gift allowances |
| What are good family investments? | Stocks and shares, bonds, ISAs, SIPPs, real estate, savings account, a family business |
| Reasons to create family investments? | To generate funds for emergencies, retirement plans, children’s education, house deposit, vacations, etc |
Wisely made family investments can also ensure a good standard of living for the more elderly members of the family in their retirement years. Sound family investments can also help to fund children’s education and give your young ones a good start in life when they reach adulthood.
The aim is to start investing as a young family to help grow wealth over an extended period of time. There are many options when it comes to making beneficial family investments. They include things like bonds and ISAs of one description or another. So please read on to discover the best family investments for you and yours.
What are family investment companies, and how do they work?
A family investment company is an organisation that has been set up precisely to help families to invest for their future financial welfare. Typically, they work in the following way.
- Parents can deposit funds in a family investment company as interest-free loans or in exchange for preference shares. This type of transaction will not be liable for inheritance tax, and the funds can be withdrawn tax-free at a later date.
- Parents who opt for preference shares in this type of family investment trust are given voting rights at shareholder meetings.
- Alternatively, parents can opt for non-voting shares, which can then be passed on to their children (who can receive dividends) without being subject to inheritance tax, providing that the parents live for a further seven years after the date of the gift.
However, please note that shareholders who extract profits from the companies that operate these family investments will have to pay income tax on their withdrawals.
Various vehicles for family investments
Other options aside from buying into companies that operate family investments include purchasing premium bonds from NS&I.
Buying premium bonds for a grandchild.
The options on grandparents’ investments for grandchildren include buying premium bonds from NS&I. Anyone can buy premium bonds for children under the age of 16. However, the bonds can only be registered in the parents’ or guardians’ names, who can then manage the accounts until the child reaches age 16.
While investing for a grandchild is highly desirable, and premium bonds are considered a safe investment, their value remains the same as when bought. However, there is always a 240,000 to 1 chance of winning a cash prize. The problem is that inflation devalues them in real terms because they don’t earn interest.
Investing in multifamily real estate
Another option for family investments is investing in multifamily real estate, although it is not explicitly aimed at children – just families in general. It involves investing in projects designed to house many families – like apartment complexes. The attraction of multifamily investing is the potential for long-term asset growth and income from rent.
What are mutual fund families?
You may have heard the term “mutual fund families” and wondered what these are and how they work as family investments, but they are not what you may think.
Mutual fund families are not funds designed specifically for families. The term relates to a group of mutual funds managed by one organisation. The funds are usually spread over various sectors to give the investor more diversification, even though all the funds are managed by one company.
The financialplanning.com website has a list of what they say are the 10 best mutual fund families by assets.
While researching family investments, you may come across the Family Investments Child Trust. However, don’t get too excited. Although it is an investment vehicle, it’s nothing to do with children.
Other non-specific children investment vehicles include ETFs, various types of bonds, and some types of ISAs, including stocks and share ISAs.
But if you are concerned more with a savings plan for grandchildren or children, you will want something more child orientated. For more information, you could look at the investing for children blog on the Moneyfarm website.
ISAs for babies and children
Once upon a time, investing in children’s bonds was possible, but new applications were closed down in 2011. However, if you still have one, it will continue to run until the child reaches 18; at that stage, they can withdraw the money invested or transfer it into an adult ISA.
Since 2011, many parents looking at what family investments are open to them for starting a dedicated child savings account have turned to the Junior ISA.
The cash JISA is less risky than a stocks and shares JISA and offers lower returns than a stocks and shares JISA. It is worth bearing in mind that opening and investing in a JISA when the child is born or shortly after that will be a long-term investment, which is one of the recommendations for reducing risk.
FAQ
How do I start a family investment?
Before starting your family investments, you must set your family’s financial goals. Firstly, you have to know how much each spouse or partner makes to determine how much money the family can save. Create a family budget and follow it religiously. After that, start saving as much as you can as a family cutting down on costs and any expensive family lifestyle. Finally, start investing any extra cash or budgeted money into stocks and shares, bonds, real estate, mutual funds, or money market instruments.
What are the benefits of family investment companies (FIC)?
Family investment companies have several tax benefits. Profits made from family investment companies are subject to a lower corporation tax rate instead of the higher personal income tax rate. Property investors get tax relief on mortgage interests. There are no initial inheritance tax costs on the transfer of assets or cash into an FIC if the assets or cash exceeds the nil rate band of £325,000. FICs are a great way to preserve wealth for future generations while maintaining full control over investment decisions. It also helps families accumulate profits and private wealth in a tax-efficient manner.
Why is it a good idea for the family to invest money?
Investing money has its benefits. The power of compounding helps families grow their wealth through reinvestments of dividends. Invest smartly, and your money could grow faster than inflation. Also, investing can help with various stages in life. For example, investing in a SIPP prepares a family for retirement, and opening a LISA account helps a family invest towards their first home. A JISA can be used as a child’s education fund, while an ISA investment account can be used to save towards a vacation or purchase a car.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
