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Double NS&I Certificate allowance with a trust?

Saving | National Savings Helpful? 8

Asked by BernieB, submitted 15 August 2011.

Open Quote A comment in the latest Sunday Times appears to suggest that a couple can double up on their Index Linked savings allowance (£15,000 each) by taking out the same amount again as trustees for each other, which would raise the amount to £60000 per couple per issue. Is this correct and what is the process to carry this out?

Would an expensive legal bod be required or is it all simple DIY?
End Quote

Answered by Justin on 19 August 2011

Looking at the NS&I Index-Linked Certificates terms and conditions this does seem correct. The relevant sections are:

43. "Certificates held by someone as a trustee will not count towards their own holding."

44. "Certificates held in the joint names of a trustee and beneficiary will not count towards the beneficiary’s own holding."

Rule 43 makes sense, trustees don't stand to benefit from investments held within the trust so it shouldn't count against their own allowance .But rules 44 makes less sense, as it means a beneficiary can potentially benefit from I-L Certificates held in trust for their benefit in addition to their own allowance - provided the certificates are held in joint names with the trustee. But this the 'loophole' that means a couple could purchase further Issues in trust for each other in addition to the usual personal £15,000 allowances per Issue.

The simplest route would to use a bare trust. This basically means the beneficiary has an immediate and absolute right to the capital and income within the trust, i.e. they can take ownership of the underlying assets (I-L Certificates in this case) at any time - although in our example a spouse couldn't take ownership if they already have £15,000 in the same I-L Certificate Issue, as this would break the NS&I T&Cs. So the Certificates would remain in the bare trust until maturity/surrender then the beneficiary could take the proceeds for themselves.

Whether you need to get a solicitor involved is debateable. Investment providers normally provide a simple bare trust free of charge, as these trusts are really simple. However, while the NS&I helpline told me you just need to use their trust application form, this doesn't contain any trust wording or provisions that I can see. A quick surf on the web suggests a number of people have 'successfully' applied in this way, but I don't understand how the trust would have been set up without any sort of relevant wording in the application form. I'll drop a line to the NS&I press office next week and post any response below.

HMRC doesn't seem to pay much attention to bare trusts (in fact I don't think anyone does). As the beneficiary has immediate and absolute entitlement to the assets they're liable to tax from day 1 - there's no need to inform HMRC when setting up the trust because the trust doesn't pay any tax itself. And given the Certificates are tax-free there should be no tax issues anyway. So if NS&I is happy to accept their trust application form I can't see you getting into any trouble.

Perhaps the only issue (without a proper trust document) would be if a couple were to divorce, in which case the ownership of the Certificates could be an issue, although provided two 'trusts' are set up for equal amounts with each partner being beneficiary for the other this shouldn't be a problem.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (2) - To post a comment please register or login .

Comment by BernieB at 1:14pm on 05 Sep 2011:

Did you get any further information on the trust documentation / wording from NS&I Justin?

Comment by justin at 3:56pm on 06 Sep 2011:

Hi there. Sorry I didn't post this sooner.

NS&I has confirmed that the "application form does set up the trust, but they reserve the right to request any additional documents from the trustee which we deem necessary to satisfy ourselves of the validity of the trust."

This is the best I could get out of them and doesn't sound especially satisfactory as if they supply the trust creation document (i.e. application form) you'd think the vaildity of the trust would rest on this...

Nevertheless, sounds like the form is fine and the stuff about reserving the right to request additional documents is probably backside covering. In any case there wouldn't be any additional documents assuming you've used their application form to setup the trust.

As per my answer, becase HMRC doesn't need to be informed when setting up a bare trust I can't see anyone getting into difficulties if just using the NS&I form which the exception of the divorce example I mentioned.