Children's savings

blibblob74

Can anyone help? Having read Martin's weekly email it reminded me about the £100 limit on interest that children can earn on money invested for them by their parents.

Is this on money invested in each tax year (like an ISA) or is it cumulative?

The snag is that if they earn £101 of interest then ALL the interest is taxed at the rate of the higher earning parent (I think) which hardly encourages saving! A year or two at current interest rates won't be affected, but beyond that and won't it become a problem?

opinions4u

It's based on earning in excess of £100 (gross) interest per tax year.

If you can show that the capital didn't come from the parents (e.g. grandparents gifted it) then the £100 rule doesn't apply.

Robert_Sterling_3

Clearly the reason for this rule is that were there no such rule parents might put a lot of their money in their childrens name.

Mikeyorks

blibblob74 wrote: »

Is this on money invested in each tax year (like an ISA) or is it cumulative?

It's cumulative. And it applies to the funds supplied from each parent ... therefore it's applicable to their marginal rate, not the highest earning parent.

The snag is that if they earn £101 of interest then ALL the interest is taxed

...... unlikely. There's nothing automatic about the £100 limit nor are parents required to analyse if 'their' money breaches the indicative limit .... and submit it on their SA Return or advise HMRC. It's there, as previous post, to stop parents shielding their own funds in a child's account. And HMRC are only likely to take an interest if the account acquires substantial funds ... or there are multiple accounts.

blibblob74

Thanks to everyone - yes, I get the shielding thing. I've opened trust accounts for my kids, and in 2-3 years time they'll easily be earning the £100 (assuming that interest rates stay positive!). And I can't get at the cash in those accounts, it is protected for their use only by the building society.

Taking the shielding thing to one side, the incentive to save for our children's futures doesn't seem too great!

Guess there isn't a lot of point in complaining - there are bigger things going on to get worked up about!