How do I make certain my children don't pay tax?

The_Governor

We put a little bit away each month for our two children, only £15 but it all adds up, what with extra on birthdays and the like.

I pay at 40% so my understanding is that when they earn more than £100 a year in interest from money I give them they pay tax at my high rate (which is frankly immoral in my view!).

One of the kids already gets that much in interest, what can I do to keep it away from the Inland Revenue, she's going to need it a lot more than they do in the future!

mrkbrrws

£100 rule

"There are special rules if a parent has given savings to their child. Where gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is taxed as the parent’s income. A child cannot claim back any tax on that income. Nor can interest be paid without tax taken off.

The £100 rule applies to young people until they reach 18 or marry (whichever comes first).

The £100 rule applies separately to each parent. It does not apply to gifts given by grandparents, other relatives or friends."

http://www.hmrc.gov.uk/tdsi/children.htm#b


So if the money is jointly given by both parents, then £200 interest would be allowed and any interest earned on money given by anyone else is also ignored.

The_Governor

So knowing that, are there any accounts that are immune?

RichyRich

No! Your children's interest would be taxed as income, and saying you can get an account with Barclays that you don't pay tax on but if you get one with NatWest you have to pay tax would be ludicrous - it'd be like saying if you work for Morrisons you'll be taxed on your earnings but Sainsbury's will let you be "immune". The only accounts not subject to taxation are those specified by government to receive that special status. The most common of these is an ISA, where no tax is payable on interest earned and you can save up to £3,600 per tax year, but IIRC you need to be 16 to open one.

The_Governor

Well I wasn't trying to be ludicrous, I wondered if some sort of Trust or Bond might be protection...?

CLAPTON

A child trust fund is tax free ... up to 1,200 per child per year can be invested
I know of no others however.

The_Governor

Hey, the CTF I'd forgotten about that, thanks that's a good starter!

Cook_County

The_Governor wrote: »

So knowing that, are there any accounts that are immune?

You can invest in products with low yields to reduce the return below the permitted maximum (eg stocks with low dividends but decent growth).

Offshore bonds & premium bonds are also commonly used for children.

shaven-monkey

set up a family trust, buy houses as assets for the trust.
Name the beneficiaries as your kids.
Leave the houses vacant.
Survive 7 years.
The houses lose value over the next 10 years but if you buy in about 6 months they'll not lose a large percentage.
Vacancy means they generate no actual income.
Capital appreciation over the long term for the kids.

Or i could be talking out of my .. lack of experience.

The_Governor

Cook_County wrote: »

You can invest in products with low yields to reduce the return below the permitted maximum (eg stocks with low dividends but decent growth).

Offshore bonds & premium bonds are also commonly used for children.

I'll have to look into that, I can use the CTF for my second daughter but apparently not for my first because she was born before 2002

Yiqi - er, cheers for that

Shaven-monkey - yeo you are right (at least as I understand it) the trouble si I can't afford to buy a house

Andy_L

CLAPTON wrote: »

A child trust fund is tax free ... up to 1,200 per child per year can be invested
I know of no others however.

I think a pension avoids this problem well, although that comes with it's own swings & roundabouts