Use your child - best child savings account

lynseydee

Hi

My son is due to turn 1 in three weeks and I'm looking to open a savings account for him. I have £40.00 to open the account with and want to contribute £10.00 a month. Ideally I'd like an account I can open online as I live in a small town but if I have to go to the nearest town I can do that.

I am finding it mind boggling all the different types of account on offer and not sure of what the best one would be to open. I'm happy to do a fixed term account if that is the better option but only in the short term or do I go for a normal savings account? And then there are ISAs!!

Any suggestions on the best way of picking the right account?

notanewuser

lynseydee wrote: »

Hi

My son is due to turn 1 in three weeks and I'm looking to open a savings account for him. I have £40.00 to open the account with and want to contribute £10.00 a month. Ideally I'd like an account I can open online as I live in a small town but if I have to go to the nearest town I can do that.

I am finding it mind boggling all the different types of account on offer and not sure of what the best one would be to open. I'm happy to do a fixed term account if that is the better option but only in the short term or do I go for a normal savings account? And then there are ISAs!!

Any suggestions on the best way of picking the right account?

You can't open a children's account online I'm afraid.

My DD has a regualr saver with Halifax at 6%, a bond with Principality for 4.5% and an instant access account with Virgin (3%). 2 of those are only 12 month accounts, so once a year I trek into town, withdraw the money from the regular saver and the bond and restart them before paying the withdrawn money into the Virgin account. What a palava!

xylophone

Have you considered a JISA?
https://www.gov.uk/junior-individual-savings-accounts/overview
http://www.halifax.co.uk/isas/
http://www.investorschronicle.co.uk/2012/03/02/your-money/savings/jump-start-your-jisa-2nM97FvgWHkzz4etTPc1YP/article.html

If a parent providing capital outside tax privileged accounts like JISA see
http://www.hmrc.gov.uk/tdsi/children.htm

Lolo14

I have £30k which I would like to give to my daughter who is 14 for her future. What is the best tax efficient way of doing this ?

xylophone

I have £30k which I would like to give to my daughter who is 14 for her future. What is the best tax efficient way of doing this ?

It looks as though she is eligible for the JISA so see post 644 above.
£3600 can be subscribed in this tax year and £3720 in the next.

If investing for a child outside the JISA be careful of the £100 rule as above. You might consider investments that would generate capital gains rather than income. http://www.moneymarketing.co.uk/investments/good-financial-planning-can-mimic-benefits-of-child-trust-funds/1020490.article (allowance figures out of date).http://www.hmrc.gov.uk/rates/it.htm

littlecabbage

I would like to open a savings account for my 20 month old son, into which my husband and I can pay a regular amount every month, and grandparents etc. may also contribute if they want to.

I am reluctant to consider a Junior ISA as I think 18 years old is too young to be in charge of a large amount of money - I would rather be able to present him with a decent amount of money once he has finished his education and is looking to buy his first house. I know that if I had been given an "inheritance" at 18, I would probably not have invested it in a house or business, and then regretted it later.

I think we are unlikely to pay in more than the single person's tax free allowance each year, but it is highly likely that over time, the total amount saved which was contributed by his parents, would exceed producing £100 per year, so he would pay tax that way.

I am unsure how this tax system works - presumably any interest earnt over £100 (from money contributed by his parents) is subject to tax. Can anyone tell me roughly what this rate of taxation would be so that I can attempt to work out whether it is worth the sacrifice of not putting the money in a junior ISA?

Thanks

FunnyPete

I am in a similar situation to yourself.
I have become more financially responsible with age, but at 18years I know I would have spent any money pot on a car.

I would like greater control over the money that my child will be able to access. To that end I'm looking at pensions for them to give them a kick start in enjoying the end of their work days !

Interested in the replies to your post.

xylophone

http://webarchive.nationalarchives.gov.uk/20121015000000/www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10013916
http://www.hmrc.gov.uk/tdsi/children.htm
http://www2.skandia.co.uk/Adviser/KnowledgeDirect/Investments/Collectives/Designated-Accounts-explained/
http://www.moneymarketing.co.uk/investments/good-financial-planning-can-mimic-benefits-of-child-trust-funds/1020490.article
https://www.share.com/a/jia-tax-considerations.html

might be of interest.

Reaper

littlecabbage wrote: »

I am unsure how this tax system works - presumably any interest earnt over £100 (from money contributed by his parents) is subject to tax. Can anyone tell me roughly what this rate of taxation would be so that I can attempt to work out whether it is worth the sacrifice of not putting the money in a junior ISA?

If it exceeds £100 then it is counted as your income - so whatever rate of tax you are paying at the time.

If you don't want to use a JISA and you are not using all of your ISA allowance each year (cash + shares) then you just use an ISA in your own name and gift it later. Just beware inheritance tax if you are likely to be over the thresholds.

If inheritance tax might be an issue then consider a Bare Trust instead, perhaps with an Investment Trust company e.g. Baille Gifford, but note that will not escape the £100 rule for money contributed by parents.

Your third option, as mentioned above, is a child pension. Not quite as daft as it sounds and the government will contribute 20% to it too even though your child is not a tax payer. However best done in addition to other investments not instead of, or you may have a grumpy 20 year old who can't afford a house deposit and doesn't appreciate the long term benefits of a pension!

littlecabbage

Thank you xylophone and reaper for your helpful replies. I have read through the websites and advice and have a few further questions if that's okay?

1) My husband and I each have a cash ISA which are maxed out for this year but have not used our share ISAs. Would the most tax efficient thing to do for our son be to save regular amounts into our share ISAs for him, then gift it later? (I understand we could each give up to £3000 away per year without it being subject to inheritance tax?)

2) If we opted for a normal child savings account and one of us was a higher rate tax payer and the other a basic rate tax payer, could we choose which parent was the main account holder and therefore whose rate of taxation was used for our son's savings?

3) Is there an easy way of working out how much tax our son's account would have to pay over a set amount of years? I have tried using the "Savings Calculator" on the child savings page of MSE, but this says to tick "no tax" if you are calculating for a child. However, after a few years of saving, I presume tax would apply because the total amount saved would earn more than £100 interest per year? So should I tick the box for basic rate tax instead for an accurate answer (obviously I would have to estimate average interest rates and amount paid in per month over the full term, but at least could do a comparison). I just want to work out whether the sacrifice of paying tax is worth it for the benefit of not using a junior ISA and preventing my son from accessing the money too early.

Thanks for your help.