Q I would like to create a savings account for my granddaughter to benefit from in the future. However, as she lives in New Zealand I cannot open a UK account in her name, and have been unable to find any way in which regular savings can be ring-fenced for her future benefit. Do you have any suggestions?
A This is a tricky situation – very few, if any, banks will allow you to open up a savings account for somebody that is not a resident in the UK.
The reasons why are sound – banks cannot facilitate fraud or money-laundering and while your purposes are purely innocent, there is a risk that criminals based overseas may attempt to exploit the banking system were they able to have accounts set up on their behalf.
And as your granddaughter is not a UK resident, she cannot tap into the perks that younger savers enjoy in the UK – namely the Junior Isa.
This is the under-18s version of the adult Isa, which allows parents, grandparents and friends to contribute up to £4,368 in this tax year and sees all the interest you earn accumulate tax-free. The money can be invested in cash or stocks and shares, or a mix of the two. The funds cannot be accessed until the age of 18 – one of the benefits you’ve said you are looking for.
Only parents and legal guardians can open and manage a Junior Isa for any child under 18, and ordinarily those living abroad won’t be able to do so. However, there is an exception for ‘Crown servant’, such as those in the UK’s armed forces, diplomatic service or overseas civil service. So unless your children work for the government, it looks like the Junior Isa won’t be an option for you.
So, what are your options?
The first is relatively straight-forward – asking the parents of your granddaughter to deposit money for you into a New Zealand-based savings account. There are some interesting government-backed products in New Zealand, namely the KiwiSaver.
It shares some similarities with the UK’s lifetime Isa, in that it is a retirement savings account that sees your contributions topped up by the government and invested in the stock markets. You can access it at age 65, but you can make early withdrawals if you’re buying your first home or you’re moving overseas permanently.
Only legal guardians can set up a KiwiSaver account for under 16s, but the government contributions don’t start until they reach the age of 18. When your granddaughter starts working, she’ll need to make a contribution from her salary, and will get contributions from her employer too. While she’s too young to work, however, you can make voluntary contributions whenever you like.
And once she’s been a KiwiSaver for three years, she’ll be able to take out some of her savings to buy her first home.
Of course, you’ll need to find a cost-effective way to send money overseas, and I highly recommend avoiding high-street banks if you want to secure the best currency exchange rates. Services such as TransferWise, OFX and Azimo enable you to do this online, but make sure you check the fees and rates.
Alternatively, you could set up a ‘bare trust’ for your granddaughter and invest on her behalf.
This type of arrangement means that the money is considered to be owned by your granddaughter, but she cannot access it until the age of 18. However, she would be liable, potentially, to tax from the gains made by her investments, which could become complicated.
Finally, you could set up an account in your own name, make regular savings and transfer the money over to your granddaughter when you see fit.
Gareth Shaw is the Head of Money at which.co.uk.