How to invest for grandchildren in Australia

We want to invest some money in stock market funds for our young grandchildren. They are now resident in Australia. Neither has British nationality. We are British nationals and residents, while their father (our son) retains his British passport and their mother has both Portuguese and South African passports. Investment schemes for children in the UK often recommend a “bare trust” – does this make sense in this situation?

Christopher Groves of solicitors Withers says that, as you appear to be domiciled in the UK for inheritance tax (IHT) purposes, then a bare trust would be a good arrangement for your situation.

By using a bare trust, you will be treated as having made a gift to your grandchildren when you first create the trust.

Given that your children are not UK resident, a bare trust is also likely to be preferable to a more complex trust structure that would continue to be subject to UK IHT after you had made the gift.

The essence of a bare trust is that the trustee (you) holds assets in trust for the beneficiary (your grandchildren) unconditionally.

This means that, for tax purposes, your grandchildren are treated as if they own the assets, but legal title remains with you, and you have the power to make investment decisions.

Once your grandchildren are 18, they will legally be able to hold the assets themselves and can require you to transfer the assets to them.

As your grandchildren are the owners of the assets for tax purposes, you should make sure that any income or gains are reported (as necessary) in Australia and that the investment scheme you use is compliant with Australian tax rules.

When considering how you make the gifts to your grandchildren, bear in mind that each of you has a £3,000 annual IHT allowance, which can be carried forward one year if unused.

You may also be able to take advantage of the “normal expenditure out of income” IHT exemption for gifts above that level.

Charged twice for interest

I have just switched mortgage lenders. Both banks have charged me interest for the actual day of the remortgage – meaning I have paid twice for the same money, costing me an additional £20. What can I do to stop this double-charging?

Melanie Bien, director of Savills Private Finance, the mortgage broker, says this double-charging may seem unfair but is standard practice among lenders.

Both lenders would argue that they are within their rights to charge interest for the day that your mortgage switches from one to the other as both of them will have to commit funds, possibly for the entire day.

When you are buying a property, the drawdown for the new mortgage often occurs the day before completion so that funds are ready, and so there is an additional day’s interest payable.

Also, completions sometimes do not occur until late in the day as the money from further down the transaction chain comes in late.

This will mean the original lender will have to commit the necessary funds for most of the day.

In practice, it is very difficult to avoid this double-charging.

You could try challenging it and your former lender may reimburse you once the dust has settled on the remortgage.

But interest is actually due to both the new and old providers, so be prepared to meet with refusal.