Tax on Children Savings

msaquib

Hi,

We have opened the following accounts for my child:-

1. Halifax Children Regular Saver - £100 a month (Trustee in my partners name)
2. Halifax Children Regular Saver - £50 a month (Trustee in my name)

According to HMRC website. Child can earn interest tax free of £100. Anything more than that will be classed as parents income and tax will be payable on the whole.

Can anyone please advice by opening the above accounts, is my child eligible for the gross interest?

Thanks
MS

Mikeyorks

Yes. But you do have to file an R85 for each account ..... it's not automatic just because it's a childs account.

Treat the £100 as 'indicative'. It's not a figure HMRC patrol too rigorously .... it's basically there to stop parents shielding their own funds via childrens accounts

Lokolo

Its £100 interest. Not how much in your account.

So if the rate is 6% you would need £1667 before interest is taxed.

Also as I understand it, the money is only taxed after the £100? (someone will clarify this)

msaquib

Thanks

Just been to direct.gov.uk website and it says:-
Each parent has a separate £100 limit. So if both parents contribute equally your child could get interest of £200 a year without either of you having to pay tax on it.
There's a separate £100 limit for each step-parent too
So that means if my partmer pays in £100 into the Child RS and I do the same. Both of the accounts interest should be tax free becasue the total interest would be less than £200 a year. I'm I correct?

Thanks
MS

opinions4u

The £100 rule applies if the capital has come from the parents and has generated interest of £100 a year or more per parent per child.

Earn £99 this way, and it's tax free. Earn £101 this way and the whole amount will be taxed at the parent's highest rate.

A couple of ways round this:

1) If one of the parents is a non-taxpayer ensure they are the trustee.
2) If you can show the capital has come from anywhere other than a parent (e.g. a grandparent) any interest generated will be treated as the child's income. Retaining a letter confirming a gift or intention to fund an account monthly etc may be wise, although the likelihood of ever having to produce it to the taxman is low.

Mikeyorks

msaquib wrote: »

I'm I correct?

You are for the first year ...... but what about subsequent years? The capital + interest from the 1st Year you're going to tip into a Sav4it account, or similar. And it will earn interest whilst presumably you continue with the Regular Savers (they don't end after a year - unless you so choose). So the cumulative effect will quickly take you over the £100pa?

But bear in mind each child has a £6035 personal allowance. The £100 figure - which is not patrolled at that level - purely relates to funds provided by each parent ... so it does allow options.

bengee1977

opinions4u wrote: »

Earn £99 this way, and it's tax free. Earn £101 this way and the whole amount will be taxed at the parent's highest rate.

That doesn't sound right. The way tax allowances work is you get the first £x tax free, and everything over that amount is taxable.

jem16

bengee1977 wrote: »

That doesn't sound right. The way tax allowances work is you get the first £x tax free, and everything over that amount is taxable.

Not in this case. It's not the child's personal allowance - it's because the money that has generated the interest has come from the parents. It's basically to stop parents utilising their children's tax-free allowances.


http://www.hmrc.gov.uk/tdsi/example5.htm