Use your child - best child savings account

Pihoqahiak · 30 July 2004 at 2:39PM

This looks like a good thread for my question, which is similar but different ...

I live in Germany, have done for 12 years, have no British bank account. My brother and sister-in-law have just had a baby - so I'm an aunty for the first time. I would like to set up an account for my nephew in his name (he and his parents live in the UK) and pay into it every birthday and Xmas. I do not want to wait until April next year to see if my brother enters the CTF programme and then just contribute to it if he does, nor do I want to force my brother to set up an account for the child, this is an investment from me for my nephew, separate from anything the rest of the family does. I want to lock the account until he is 21 years old.

Does anyone have a tip for me as to how I can do this? I've tried a few UK banks, but they all say I can't set up the account for him as I'm not his parent or legal guardian. As the child is just a week old, I don't want to go to my brother and tell him what to do, or get involved in his plans, this is my present to my nephew - or not, at the rate I'm going.

Does anyone know of a way around the problem? Will setting up a trust fund allow me to put a small initial deposit of around 500GBP and add to it over the next 21 years. Or is there a bank/building society I don't know about which can help me?

isasmurf · 30 July 2004 at 10:37PM

I do not want to wait until April next year to see if my brother enters the CTF programme and then just contribute to it if he does

Your nephew will have a CTF whether your brother takes it up or not. The parents get sent the voucher, but if they don't open a CTF after a period of time (a year I think), then the Inland Revenue will open one up on behalf of the child.

Sorry I can't help on the rest of your query.

erb · 27 October 2004 at 7:22PM

As a newbie I have just seen this discussion. What I would like to know is if a parent gives the child money that goes in the childs savings account that earns less then £100 interest, thus no tax, is this interest regarded by the Inland Revenue as yet more money given by the parent or is the interest money from other than a parent. This becomes important because as interest is added to the childs account each year the interest on the total amount in the account, including reinvested interest, could then exceed the £100 limit thus making it taxable.

I hope the answer is the interest is not money from the parent but knowing the Inland Revenue I wonder.

dunstonh · 27 October 2004 at 8:00PM

As a newbie I have just seen this discussion. What I would like to know is if a parent gives the child money that goes in the childs savings account that earns less then £100 interest, thus no tax, is this interest regarded by the Inland Revenue as yet more money given by the parent or is the interest money from other than a parent. This becomes important because as interest is added to the childs account each year the interest on the total amount in the account, including reinvested interest, could then exceed the £100 limit thus making it taxable.

I hope the answer is the interest is not money from the parent but knowing the Inland Revenue I wonder.

If it is in the CTF, it will be exempt from tax irrespective of the return. (small proviso that CTF in equity funds will have same dividend taxation as ISAs but still called tax free)

erb · 27 October 2004 at 9:49PM

Thanks DD.

However, it is not in the CTF just a normal children's savings account at the building society.

MarkyMarkD · 28 October 2004 at 12:19AM

You are asking a slightly esoteric point, but I think the answer would be that it all counts as interest on money you've given and hence is subject to the limit.

Clearly if you inter-mingle money from you with money from others in the child's account, it gets very messy indeed, but if you are just talking about interest accumulating the £100 is the limit.

dealseeker · 28 October 2004 at 3:35AM

Regular Saver accounts
As Robert_Shilling pointed out on another thread you can invest in the 7% regular savings products marketed by Halifax (£250 max pm) and Abbey(£500 max per pm).
Would need to be opened by a trustee i.e. parent, grandparent etc. (if child under 16). The £100 tax free limits discussed above would then apply (If both parents contribute child can earn £200 in tax year).

An alternative using conventional childrens marketed accounts would be the Scarborough Building Society. Gives a guaranteed 1% over base over the 3 year period (currently 5.75%) - max monthly contribution £150.

erb · 28 October 2004 at 9:42PM

Thanks for your advice MarkyMarkD.

If interest on accumulated interest takes the total interest over the £100 limit the best thing will be to withdraw the interst and spend it to keep the interest in any tax year below the £100 limit. Otherwise it appears £101 interest for a tax year will result in a 20% tax charge = £20.20. Or even worse 40% = £40.40 if the parent is a higher rate taxpayer. Whereas keeping the account to earn just the £100 limit = no tax charge at all.

I am sure my child will like this solution but they will learn the lesson that due to the tax system it is sometimes better to spend than to save. Whereas I wanted to teach them the value of compound interest.

Robert_Sterling_3 · 29 October 2004 at 2:44PM

Suppose Mrs A is the god parent of Mrs B's daughter and Mrs B is the God parent of Mrs A's Son .....
No don't let us even go there.

Robert_Sterling_3 · 29 October 2004 at 2:53PM

A CTF is not a normal child savings account at a Building Society.
For a start the child can not cash it in until the age of 18.

Use your child - best child savings account

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