Tax on Child Savings?

Be_Happy

I know this has been covered at length, but I still can’t get my head round the question of tax.

Grandparent wants to save around £30 a month for newborn grandchild to help with house deposit when time comes, so we’re looking long term. Savings need to remain in grandparent’s control. No intention to set up official trust of any kind.

Grandparent opens regular savings account in their own name with child’s name added (I think this is possible, but not sure).

Question - is the grandparent liable for tax on the interest? From what I’ve read it seems that account can only be tax free if in child’s name with the intention of handing it over to the child at age 16.

opinions4u

Here's a link to an article on the main site.

"If it's their own money, children can earn the same £6,475 a year in interest as adults can before it gets taxed. However, don't assume you can dunk fortunes in your kid's name. If a child generates more than £100 interest in the course of the year, from money specifically given by each parent, this income is taxed at that parents' tax rate.

In practical terms this means you could put up to £4,500 in the 2.2% top paying children's account, and it wouldn't be taxed, as that would generate around £99. Just to clarify, this doesn't mean £4,500 every year; it's the interest generated from all cash given in this and previous years.

Yet these rules only apply to parents, not grandparents, aunties, uncles or friends – they may all give your children as much as they like and, providing it's a genuine gift, it counts as the child's money without a £100 limit. "

Question - is the grandparent liable for tax on the interest?

No.

From what I’ve read it seems that account can only be tax free if in child’s name with the intention of handing it over to the child at age 16.

Do you have a link to what you've read? It seems to be wrong.

CLAPTON

if the savings remain in the ownership of the granparents then they are not the childs (whatever his eventually intention) so he will pay tax
if they are the child's and he is simply looking after them then the child can use their own tax allowance but they take control at 16 years... which presumably he doesn't want.

Be_Happy

Thanks opinions4u and CLAPTON your differing replies highlight exactly the confusion I see when I read up on the subject.

gozomark

I see no conflict between the advice given by opinions4u and CLAPTON

If a gift, then no tax liability to Grandparent, but if "Savings need to remain in grandparent’s control" then its not a gift and so tax liability to Grandparent

gozomark

"Grandparent opens regular savings account in their own name with child’s name added" - so its a joint account, with presumably grandparent liable to tax on half the interest

Lokolo

Why not have the account open in the childs name but just don't tell him about it until the time comes.....?

peachyprice

Why do the grandparents need to maintain control of the money?

If it's any help my children all have an accounts, solely in their name, with Harpenden BS that can be added to continually by anyone but cannot be touched until they are 18.

Be_Happy

Thanks for all your views.

As said in the original post, the money is earmarked for use towards a house deposit. Any account in the child's name will automatically be his to do with as he wishes at the age of 18 and I think the average 18 year old is more interested in buying a car than saving for a house.

Obviously you can't foretell the future, but this is the only money I can give the child, so I want to help towards his future security.

gozomark

The problem is, youwant to keep control of the account, but also not be liable to tax, and I believe you can't do both

Lokolo

Be_Happy wrote: »

Thanks for all your views.

As said in the original post, the money is earmarked for use towards a house deposit. Any account in the child's name will automatically be his to do with as he wishes at the age of 18 and I think the average 18 year old is more interested in buying a car than saving for a house.

Obviously you can't foretell the future, but this is the only money I can give the child, so I want to help towards his future security.

He can't if he doesn't know it exists.....