child savings and tax - confused!!

booj_2

Having read the advice on MSE, I am confused. I have read that children have the same tax allowance as adults (ie £6,475) so assuming our child does not save over this amount and we have completed the R85 form, she will not pay tax. However, further down the same page it states that they will have to pay tax on any interest over £100??

So, if we put £1,200 into the halifax account which would make £588ish interest, why does she need to pay tax (as this is not over the £6,475 allowance)??

chrisbur

booj wrote: »

Having read the advice on MSE, I am confused. I have read that children have the same tax allowance as adults (ie £6,475) so assuming our child does not save over this amount and we have completed the R85 form, she will not pay tax. However, further down the same page it states that they will have to pay tax on any interest over £100??

So, if we put £1,200 into the halifax account which would make £588ish interest, why does she need to pay tax (as this is not over the £6,475 allowance)??

The tax on interest over £100 only applies to interest coming from money given to the child by the parents or step-parents. I assume that this is to try and prevent parents using children's accounts for their own money. Gifts from other relatives like grandparents aunts uncles etc are nor affected so best if any large amounts seem to come from them.
Also are you sure about those figures £588 interest on £1200 seems a lot?

trevormax

she doesn't have to pay tax on that interst, YOU do. There are rules in place to prevent parent using their childs tax free allowance to avoid paying tax in situations such as this.

http://www.hmrc.gov.uk/ISA/faqs.htm#12 this link is going on about isa's mainly but if you go to the question that asks "Can I put money into an ISA for my child?" the answer for this question is exactly the same as "Can I put money into a savings account for my child?"

SuzieSue

booj wrote: »

Having read the advice on MSE, I am confused. I have read that children have the same tax allowance as adults (ie £6,475) so assuming our child does not save over this amount and we have completed the R85 form, she will not pay tax. However, further down the same page it states that they will have to pay tax on any interest over £100??

So, if we put £1,200 into the halifax account which would make £588ish interest, why does she need to pay tax (as this is not over the £6,475 allowance)??

You are getting confused between income (interest) and capital. The £6,475 tax allowance is the amount of income that a person can earn without paying tax. In your example, if you deposited £1,200 you would earn around £58 interest per year. Therefore, if this was your only income, you could earn another £6,417 (6,475 less 58) in that tax year before you paid tax.

The situation is slightly different for a child. Although they also get the £6,475 tax allowance, they can only earn £100 interest per year on their savings before they pay tax if their savings were given to them by their parents.

However, if someone else (eg grandparents, aunt etc) give them the money then they could earn the full £6,475 per year in interest before they paid tax.

This is obviously to stop parents putting money in their childrens accounts to avoid paying tax.

Therefore if a (very rich) grandparent gave a child £129,500 and the child put it in a bank account paying 5% interest, the child would not have to pay any tax on the interest of £6,475 if this was their only income in that tax year.

Richard_Star

We moved to another European country three years ago and my children still had accounts in UK into which a regular payment was still being made. When I recently visited the UK to update the accounts I was advised that they should transfer to an under 19's account which I did. The bank have now advised me that they cannot register the interest to be be paid gross, only net, as we do not live in UK and I have to reclaim it. Can anyone advise me why this is and how I reclaim the tax which the children were not paying before they changed the account?