Saving for a child

Mandie71

I have opened an 'ethical' child trust fund account for my little boy with the co-operatives sister company CIS, I now need to open a really good long term savings account for him, but that we can also have access to should we need to buy him anything. Any recommendations?
I have been warned that I will be penalised for opening an 'ethical' savings account as the interest rate isn't as good as normal accounts.
Many thanks in advance!
Mandie

cloud_dog

Mandie71 wrote:

I have opened an 'ethical' child trust fund account for my little boy with the co-operatives sister company CIS, I now need to open a really good long term savings account for him, but that we can also have access to should we need to buy him anything. Any recommendations?

You need to be aware of the £100 interest rule on a childs savings account. If the parents of a child deposit monies into a savings account in the childs / parents name and the interest from this money is greater than £100py the interest will be taxed at the parents highest tax rate. No charge applies if the money is deposited by anyone else, i.e. grandparents / friend, etc (a bit of a hint there, if it might be applicable).

I have been warned that I will be penalised for opening an 'ethical' savings account as the interest rate isn't as good as normal accounts.
Many thanks in advance!
Mandie

Ethical based trusts tend to be investment vehicles not savings accounts - not saying you cant have an ethical savings account but that the point of the ethical trust is to 'invest' ethically - savings do not really come under that banner.

Question, why if you do not think an ethical trust will perform particularly well did you invest the money into it? If you are ethically minded then be happy and just accept the possibility of lower returns.

Summary: You have opened an investment trust for your child and now you are looking for a normal savings account. Most of the major Building Society's offer competitive children accounts - offering around 4.75% (or more).

Is your child eligable for a CTF voucher?? you can put this into a qualifying investment vehicle or a savings account.

When you open the savings account make sure you complete the Inland Revenue form R85 - claim interest gross, i.e. no tax deducted.

Edit: Forgot to mention normally you are the joint signatury on the account until the child reaches the age of 7, technically they then have legal ownership of the account and money.

cloud_dog

Debt_Free_Chick

Mandie71 wrote:

I now need to open a really good long term savings account for him, but that we can also have access to should we need to buy him anything.

Why not have a savings account in your name, take money out for him when needed and then simply give him the cash at a future date i.e. whenever you decide.

It doesn't need to be in his name and if you want to access the cash, it's easier all round if it's in your name.

roswell

tax on interest may be the reason why they want it in there childs name.

another thing is your less likely to raid your kids piggy bank then your own :-)

scorour

cloud_dog wrote:

You need to be aware of the £100 interest rule on a childs savings account. If the parents of a child deposit monies into a savings account in the childs / parents name and the interest from this money is greater than £100py the interest will be taxed at the parents highest tax rate. No charge applies if the money is deposited by anyone else, i.e. grandparents / friend, etc (a bit of a hint there, if it might be applicable).
cloud_dog

Hi Cloud_dog,
This is my current predicament, I transfer £25 per month into my 4 year old sons Nationwide Smart Account, he now has £2000, and his yearly interest statement came yesterday showing £80 interest. Obviously from now, the amount is going to exceed the £100 interest during the coming year, so I am looking at what I can do.

I currently have 3 children, 2 months, 3 years and 4 years, I have an arrangement to auto transfer from my flexaccount £25 into there Nationwide savings (2 younger ones the CTF). I also have a 20 year policy I transfer £25 into for them, so am looking at what I can do with my sons £2000 to make sure he is not taxed.

When you say "No charge applies if the money is deposited by anyone else, i.e. grandparents / friend, etc (a bit of a hint there, if it might be applicable)."

How can I prove the money was not from me? Can I stop the transfer and pay in cash, or would the assume it was still from me? Or should I look at moving the cash to somewhere else?

Cheers for any info.

gibby

im looking for the same thing myself but not fidning anything

the only thing I can think of is premium bonds as any gains are tax free and I believe you can have 30k in a childs name.

any one else now about anything better??

g

Dave_P161

gibby wrote:

im looking for the same thing myself but not fidning anything

the only thing I can think of is premium bonds as any gains are tax free and I believe you can have 30k in a childs name.

any one else now about anything better??

g

I am not sure if you would regard this as 'better', but National Savings Childrens Bonds do not have the £100 restriction on interest earned from money given by parents. Limits are £3000 per issue, must be kept for 5 years to get final bonus, can be 'rolled on' for another 5 years at end of term, tax free for children and parents but not spectacular interest rates unfortunately.

cloud_dog

scorour wrote:

When you say "No charge applies if the money is deposited by anyone else, i.e. grandparents / friend, etc (a bit of a hint there, if it might be applicable)."

How can I prove the money was not from me? Can I stop the transfer and pay in cash, or would the assume it was still from me? Or should I look at moving the cash to somewhere else?

Cheers for any info.

We're getting into a bit of a sticky wicket but............ In order not to fall foul of the IR you need to just be able to prove where the money has come from. If a lump sum deposit is made then perhaps keep a photo copy of the cheque and the paying receipt. If the monies are a regular transfer then perhaps the savings account statement would show the paying in account details (sort no. / account no)??

I'm not advising you to defraud the tax man but is there any way a grandparent could set up monthly payments into the childrens accounts? Obviously the CTF accounts have different rules.

The only other real option (and we're getting into more complex territory) would be to consider things that don't actually generate income (interest). For example (although not a recommendation) Zero Dividend Preference shares offered by Investment Trust companies - many of whom provide a monthly savings scheme. These offer a fixed return over a period of years. The thing to bear in mind with this idea is that the returns are based on the underlying investments so, we (I) have now introduced risk into the equation.

Bottom line is that there is not an easy way around the problem unless someone else makes the deposits.

cloud_dog