adult vs child account?

phoebe03cat

Hi can I just run this across people pls. My 15 year old has £6000 to lock away for a year..before she can get an isa. Money from rellies (not us)..since she's been born really.
Money on a smart card at nationwide atm...netting 0.60%:eek: not paying tax. She could move it to nationwide 1 year fixed rate bond which isn't great either - or I think she could if she doesn't have to be over 18 that is.

My maths is awful, but wouldn't she be better off if we were to open an adult fixed bond at icici for a year and actually pay tax. Would do this in my name as min age is 18 at icici- we are already set up there. We are standard rate taxpayers.
Then next year buy a tax free isa to get some tax free saving for the future in her own name.
Thanks for comments

Money_Grabber13579

Well you'd have all sorts of complicated tax implications if you put the money in your name, as effectively it would have to be a gift to you. That'd become part of your income. Also not sure about the stability of ICICI, although that's a risk you'd have to be willing to take. (What would life be without a bit of risk?! lol)

The best thing I would advise (Although you don't have to follow it!) is to open up a Nationwide 1 year bond in branch. See this site for details:

http://www.nationwide.co.uk/savings/bonds/fixedratebonds/summary/summary-1-year-fixedratebond-annual.htm

The minimum age is 7, so no problems there. Fairly good interest rate (3% is fairly good at these times!), and no tax to pay as long as your 15 year doesn't have an income of more than 6475 a year.

Isas only really benefit when you start to pay tax, up to that point you can get better rates on bonds usually! Although having said this, it does build up your ISA pot for the future!

Money_Grabber13579

Comparing the rates, even if you followed the route you wanted to go down and just talking about tax on interest:

ICICI would give gross interest of £234
Nationwide would give £180

Less tax on ICICI would leave £187.20, so it'd only be worth an additional £7.20. Then, you'd have income tax to pay as you'd have got more money. In my opinion, its best to leave it in her name and go for the Nationwide bond! That saves you a lot of tax hassles!

EDIT: I though it was £15000, not £6000! D'oh!

phoebe03cat

:DYep,put in those terms I can totally see the logic to this. It's a pain not being able to readily work out the figures...your input is much appreciated. Might even be able to do this on line from her smart card banking access. Will get onto this later today.....
Yes, my thinking with the isa's was to build up a tax free opportunity for future years, but will have a look at the figures when we get there with ref to bonds. Thanks again for your time and figurework;)

Help please moneygrabber....do the figures still hold true for £6000 then...just seen your edit?

Money_Grabber13579

If she has access to internet banking, then you can choose the e-bond option, although having said that, I think you need a current account to do this and I'm not sure if the Smart account qualifies as this. It's worth a try anyway, it might just not let you open one! Sorry again for the confusion about the figures!

BruceyBonus

Calculating the interest is fairly simple, I'll use 3% AER as an example.
Divide the interest rate by 100, so 3% becomes 0.03.
Then multiply that number by the amount invested, i.e. 6000 x 0.03 = 180 (that is the amount of interest gross/before tax).

If you want to work out what it will be after tax, assuming you are a basic rate taxpayer, multiply by 0.8, so £180 becomes 180 x 0.8 = 144.

phoebe03cat

Thanks BruceyBonus...am going to pin that up somewhere....all is revealed.....

withnell

She can fill in an R85 form and get gross interest on any account - paying tax isn't just for over 18s, it's all based on levels of income.

So just look for the highest gross rate, so ICICI bond comes out way on top of Nationwide.

You're covered up to 50k per institution by the FSCS, so if ICICI did fail (highly unlikely in my opinion) all the money plus interest up to date of collapse will be paid back quickly.