tax on gift

jennifernil

It is clearer to say that if he is under 18, and your gift generates interest of over £100, then it will be taxed as if it were your income.

Once he is 18 it does not matter where the money came from, he will be taxed like anyone else. If his income , including any interest on all savings, is under the personal allowance he will pay no tax. If over the personal allowance he will have to pay some tax.

sloughflint

I think you may be misunderstanding several things here:
Aged 17:
You and your spouse can each give him money but if the interest generated is more than £100 each , then it would be taxed as though it was your money ( ie 20% assuming you are in that bracket).
To give you an idea. If he placed the money in an account paying 6%, You and your spouse can give up to £1666.67 each ( £100/ 0.06) without worrying about the parental taxation aspect.

Jennifernil made the good suggestion of getting your son to open an account where the interest isn't paid out until he's reached 18 to avoid the above.

Aged 18:
Your son may or may not have to pay income tax.You say your son works/has worked. He will have an allowance ( £6035 this year).
If the total of his earnings and interest from savings is less than £6035 then he pays no tax.

If the savings interest takes him over the £6035 mark, then tax will be due at 10% for the next £ 2320 worth of savings interest.

If his earnings are over £6035 then any savings interest would be taxed at 20%.

He should consider placing some savings in tax free ISA as soon as he's 18.

Charis

sloughflint wrote: »

He should consider placing some savings in tax free ISA as soon as he's 18.

No need to wait. Anyone over the age of 16 may have a Cash ISA and save up to £3600 each tax year.

http://www.moneyextra.com/guides/individual-savings-accounts-011457.php

sloughflint

Thanks for that.Typical! I wasn't sure so I quickly looked at my provider ( Icesave) which stated over 18. Best to shop around then.
Without getting too granular and depending on when the birthday falls, a lot of ISAs pay towards then end of the tax year so the parental taxation may come into play despite the ISA's tax free status for the son. ( Although it would be good for the son to take advantage of ISAs asap)

sloughflint

What exactly do you mean gryffin? Are you taking about a shares ISA? I meant a cash ISA.

sloughflint

You can put up to £3600 in a mini cash ISA each financial year and the interest is tax free and the capital is safe.

Your question:
It all depends on what he earns from his job, hence my use of 'earnings'.
If his job pays more than £6035 then there is no question, all savings interest ( emphasise word interest, not the savings amount) will be taxed at 20%.

If he earns less than this then the 10% taxation comes in.

You are definitely confused on what gets taxed be it 10% or 20%.
The gift doesn't get taxed. It's the interest from the bank that gets taxed.

eg you give £1000 to your son and he puts it in a 6% account that earns £60 interest. It is this £60 that might get taxed or not ( 10% or 20%)

sloughflint

A few examples:

1)Job pays £5000. You give £1000 that earns £60 interest.
Total income £5060 less than £6035 so no tax to pay

2) Job pays £5000. You give a large gift that generates £ 2000 interest.
Total income £7000. £965 above the £6035 allowance so tax will be due at 10% ie £96.50

3) Job pays £9000 so above the £6035 allowance. Any savings interest will earn 20% regardless.
If your son's £1000 earns £60 interest that will be taxed at 20% ie £12 tax due on his savings.
Any clearer?

sloughflint

The gift itself will not be taxed only the interest=income tax.

The inheritance tax is a different matter but I think you understood that aspect.

sloughflint

No, you still haven't quite got it.
Take pre tax pay ie greater than £10 000 which establishes that tax on savings will be 20%.
Do not add £1000 gift. Only add the interest on it ie £60.
Tax due on savings £12 which is automatically deducted at source ( ie bank).
If he puts it in an ISA. No tax to pay on the interest.
Are you ok now?