Tax on Children's savings accounts

drooke

All,
As children usually don't use up all of their tax allowance I assume that they're not taxed on interest accrued from banks account held in their name.

Is that correct? I can use a bank account in my child's name to avoid paying tax on the interest?


Thx,D

isasmurf

drooke wrote:

All,
As children usually don't use up all of their tax allowance I assume that they're not taxed on interest accrued from banks account held in their name.

No. Children's bank accounts are deducted tax just like everyone elses. To get the interest tax free, fill in a form R85 available from your bank or HMRC's website.

Is that correct? I can use a bank account in my child's name to avoid paying tax on the interest?

No. HMRC will see that as tax evasion.


Because of the temption of parents to avoid paying tax on their savings by hiding it in their child(ren)s accounts, there is a rule that a child's account can only receive £100 of interest from money deposited by their parent tax free (if the R85 has been completed). Any more then this and all the interest is taxed at the parent's tax rate.

Robert_Sterling_3

Grandparents can give money to their grandchildren.
The money can be held by the grandparents in trust for the child.
R85 is used so that no tax is paid until the interest exceeds the childs Personal Allowance.

Bojangles_3

how do you work out how much has to be deposited into a child's account to get to £100 worth of interest?

At the moment I've got £100 per month going into the Halifax 10% childs regular saver account, neither the Halifax or I can work out whether or not this will generate the £100 threshold allowed in a year before they have to pay tax. Along with this, I have £1227.68 in my child's halifax save4it account, paying interest of 4.8% - this will generate £58.93 gross interest over the year, so if the 10% account generates over £41.07 worth of interest in the year - we'll have to pay tax on it.

Is it worth it? Presumably my partner or I will have to pay that tax....?

Obviously the child doesn't get their £5300 (whatever it is individual tax allowance!)

I need a better accountant - obviously!

Robert_Sterling

On money given by one parent each child can earn up to £100 per annum and no tax will be paid ( Use R85 To not pay it or pay it and reclaim it ).
At 5% this could be £2000 max.
Other parent could do same.
So child could get £200 altogether in interest in one year with cash from parents.
Beware ... If the child gets more than £100 then ALL the interest on money from that parent will be taxed.
If you are still with me ..... The tax will be paid at the rate which would apply to that parent if they has received the interest. Thus it could be at 0%, 10%, 20% or 40%.
The Child Trust Fund is exempt and you may add £1200 in any one year ( i think each year starts on the child birthday and end the day prior to the following birthday.

Grandparents on the other hand can give grandchildren money without the £100 per annum interest restriction.

Each child can have about £100,000 at 5% to earn the first £5000 in interest which would be tax free, on the next £40,000 the interest would £2000 and this would be taxed at 10% i.e. £200 tax would be paid.

I have six grandchildren !

conradmum

My son's child's regular savings account (10%)at the Halifax has just reached its anniversary. I paid in £100 per month and it was given about £67 interest.
Hope this helps.

windym_2

Thanks conradmum, my son's accounts are nearing the anniversary. Wondered how much they would generate.

RCB28

Can anyone suggest an account where I can continue to save for my children without being penalised for their interest exceeding the personal allowance? My husband and I hold the savers jointly as trustees for our children and despite the money never having been touched - and it never will be until they are 18, we've been warned because the balance has grown it will be taxed just as our own personal savings are...so unfair!!This is our family allowance money - it's paid as one payment for the two children (silly but that's the government for you) so it has to go into our joint bank account but we have always had two standing orders straight out to their accounts the day after.

We'd be happy to lock the money away in a trust but when we've asked our financial adviser if we can do this he's suggested we transfer the funds into Investments in our own names...which I don't want for 2 reasons. 1. There would be an element of risk involved and I don't want to risk their money. 2.This is not our money...I just want to clearly show it is the children's and we don't want access to it at all!?

Help?!