Stocks & Shares

A share is a part ownership of a company, or a "share" in it. You actually own a bit of a company when you buy shares in it.

Children under the age of 18 are not allowed to buy shares for themselves. However adults can invest in the stock market on their behalf and take advantage of special tax allowances for children.

Shares in individual companies can easily be purchased. But the more money you put into the shares of one company, the more risk you face. If that company encountered problems and its share price plunged then you could lose everything in one go. Buying shares in several companies can spread the risk.

Do not forget that investing directly in stocks and shares carries associated costs. Stockbrokers commission charges can make this type of investment expensive.

Despite the historical, long term success, equity investment on behalf of your children should only be undertaken if it fits with the overall shape of your long term financial planning and you are prepared to take the risks. Unlike a deposit account, the capital you invest is not protected. In short, you should only invest money that you can afford to lose.

Because children have their own personal allowances for earned and unearned income and also their own capital gains tax (CGT) exemption then any modest investment in shares will be, in effect, tax-free. A personal allowance of £5,435 (2008/2009) will cover any dividend payments (payouts made by companies to their investors once or twice a year).

The best way to buy shares for children is to set up a simple trust which has the parents as the trustees, giving them control of the share dealing, but which has the children as beneficiaries.