Use your child - best child savings account

MSE_Martin

To read the article this discussion relates to click here

To ask a question or discuss click reply

System

My child has just turned 2 years old. She now has almost £3000 in cash savings. Most in a Halifax child account and around £800 in Nationwide.
Each parent has a control of one account.
After reading the section of your article about being taxed after £100 interest i want to know what the best option is for us to avoid the tax.
I pay £50 per month into the Halifax account and the rest has been made up from birthdays etc...

A few questions...

Should i get a grandparent to open an account to avoid the tax ?

Is it ok for me to direct debit into this account without paying the tax on interest over £100.

Is there a limit on how much can be paid to a child in one year ?

Thankyou,
Tom.

MSE_Martin

The key here is the tax situation. The first thing to remember is it is £1900 from each parent and it also depends where your account is from.

You should first of all make sure any money that wasnt from you is accounted for - eg how much of this is from grandparents etc

The other thing to check out is you can use National Savings Childrens bonds in addition for tax free savings that don't impact these limits.

Martin

System

So £1900 from each parent is the max we can pay in.

Even though he money from other people can be accounted for, how can this be proved ?

Only problem with the NS bonds are the low interest rates.
But i suppose this is better than paying tax on interest ?

isasmurf

Even though he money from other people can be accounted for, how can this be proved ?

As the way things currently stand its for you to prove that it is from other people, not for the taxman to prove it isn't. I know it's stupid and should be up to them to prove that it came from you, but hey that's life.

Also, bear in mind the figure you are allowed to put in depends entirely on the interest rate, as it's the interest that's at question here not what you put in. Martin was quoting the maximum amount for the A+L ChildSaver account as this pays the best interest at the moment.

System

Children, aged 5 and 2 years, have each inherited £5k from grandfather which has to be invested and not made available until aged 18 years. A and L offer sounds attractive but would it still be possible if I needed to move the money to another provider in the event of a better offer coming on stream. Is there a better no risk home for this money?

quinlanmd

5.65% Derbyshire Regular Savings account should be considered by those looking to save regularly for their children/young relatives. (Obviously unsuitable for those needing regular access or just depositing lump sums).

Milarky

Would opening an ISA for your child and funding this - rather than an normal savings account - have any bearing on the question of how the resulting income [were it over £100] be taxed?

AFAIK, you (your child et al) are specifically exempted from reporting ISA-generated income. It is meant to be completely 'Tax-free'. If your child has an ISA, he/she does not need to tell the taxman [would that be 'tax-official' to be PC?]. How can 'tax-free' income - which it is not required to report to the Inland Revenue - give rise to a liabilty against someone else?

DiggingOut

I believe children cannot have ISAs.

<edit>
Children CAN have stakeholder pensions, and this is a very tax-efficient way to save for your children, though obviously they can't use it for a very long time. But if they have a nice start on a pension, it will free them from that pressure when they are starting out on their own.

Obviously, you can't access the funds yourself, either.

Galstonian

You're correct, you cannot open an ISA for a child, I think 16 is the minimum age.

As for pensions, its something to think about but I would suggest that most children would prefer help with a first car or house, further eduation or even something for their first child rather than a pension. Will they even see pensionable age? Will pension law be changed between now and their retirement? (pretty much a certainty I'd say).

Anyway, the article is about using additional tax relief, not about saving for children as such, perhaps something for Martin to tackle in future?

DiggingOut

Oh, come on, Galstonian, be blunt and say what you mean:

"DiggingOut, you've been a bad boy and gone off topic." ;D