Premium Bonds - Do I stay or do I go?

springspab

I have held premium bonds for my daughter since she was 4 (now 14). A few years ago the bonds were changed from the child's name to the adult holding the bond on their behalf. I am concerned that when cashed in the value of these bonds when deposited into my daughter's account will be considered as a cash gift from a parent (me) and that they will be taxable since she has a considerable sum tied up in these,although I guess if I arrange for an electronic transfer from NSI I might get over this problem. With interest rates the way they are at the moment should I leave £10,000+ in premium bonds or place them into a high earning six month account? Not at all sure what to do to maximise savings for my daughter - I'd appreciate any help and good advice you can offer?

Many thanks

rb10

springspab wrote: »

A few years ago the bonds were changed from the child's name to the adult holding the bond on their behalf.

So are the bonds held solely in your name, or held by you (and in your name) on behalf of your daughter?

springspab wrote: »

I am concerned that when cashed in the value of these bonds when deposited into my daughter's account will be considered as a cash gift from a parent (me) and that they will be taxable since she has a considerable sum tied up in these

If NS&I see them as being held by you on behalf of your daughter, then there should be no tax issues - as the money belongs to your daughter; you are simply looking after it for her.

springspab wrote: »

although I guess if I arrange for an electronic transfer from NSI I might get over this problem.

No chance! NS&I still live in the dark ages. It's cheques all the way with them!

springspab wrote: »

With interest rates the way they are at the moment should I leave £10,000+ in premium bonds or place them into a high earning six month account? Not at all sure what to do to maximise savings for my daughter - I'd appreciate any help and good advice you can offer

Well, to compare the two:

Premium Bonds
- Published rate: 1.50%
- More accurate rate*: 1.33%

Savings Accounts
For example (one suitable for a child):
- Halifax Web Saver Extra - 2.8%, one free withdrawal per year
- Lots more here (but be sure to check if a minimum age applies; all ISAs have a minimum age of 16).

*: As the chances of you getting a large prize are so slim, but the values are so large, this has the effect of skewing the published interest rate. So here, I have just taken the lower value prizes, and calculated the rate on that.

On £10,000, the difference between 1.33% and 2.8% over the course of one year is £147.00.

Aegis

rb10 wrote: »

So are the bonds held solely in your name, or held by you (and in your name) on behalf of your daughter?



If NS&I see them as being held by you on behalf of your daughter, then there should be no tax issues - as the money belongs to your daughter; you are simply looking after it for her.



No chance! NS&I still live in the dark ages. It's cheques all the way with them!



Well, to compare the two:

Premium Bonds
- Published rate: 1.50%
- More accurate rate*: 1.33%

Savings Accounts
For example (one suitable for a child):
- Halifax Web Saver Extra - 2.8%, one free withdrawal per year
- Lots more here (but be sure to check if a minimum age applies; all ISAs have a minimum age of 16).

*: As the chances of you getting a large prize are so slim, but the values are so large, this has the effect of skewing the published interest rate. So here, I have just taken the lower value prizes, and calculated the rate on that.

On £10,000, the difference between 1.33% and 2.8% over the course of one year is £147.00.

The problem with changing is the tax status. If the money is currently seen as belonging to the parents, then when the money is gifted to the child, if the annual interest is over £100, it is taxed at the parent's rate, not the child's. This is one of the few cases where keeping it in premium bonds (a tax free product) makes some sort of sense to me, though index-linked savings certificates might be an interesting alternative over the next 5 years due to their inflation-linked tax-free returns.

springspab

RB10 and AEGIS

Many thanks both for your advice.
The bonds are held by me on behalf of my daughter. However, when a (small) winning cheque arrives the counterfoil has both the details of my daughter and myself but the cheque itself is payable to me. this means I have to pay this into an acoount in my name and then transfer that amount to my daughter's branch saving account - that is where it looks as though it is a gift from me - clearly it is not. If I transfer the whole amount of her PBs then the interest will be greater than £1000 and she will be taxed when really she should not. I did argue this with NSI when they changed payment procedures and was told I was wrong, but it appears my concerns were valid.

I have cashed in PBs of my own (last year) and arrabged for this to be done electronically giving my account details to NSI - it went smoothly and was in my account within 5 days of NSI being in receipt of my wish to withdraw funds.

Mikeyorks

springspab wrote: »

If I transfer the whole amount of her PBs then the interest will be greater than £1000 and she will be taxed when really she should not. I did argue this with NSI when they changed payment procedures and was told I was wrong, but it appears my concerns were valid.

No ..... it's the source of the underlying funds that is the issue. Not the fact the transfer from NS&I comes via your account.

Wherever you decide to put the funds you can file an R85 on her behalf .. provided the account is in her name (with you as trustee). But the value is in the area that could come under HMRC scrutiny. So you will need to be able to prove that funds generating more than £100 annually of the interest .... did not come from the parents? If you can't .... the whole of the interest is potentially taxable at your rate.

An ISA in your name is an option if you don't use your allowance .... and don't want to go the formal Trust route. You can put at least £8700 in during April (£3600 before and £5100 after 5th April)

springspab

:TThanks Mikeyorks - good advice.

I'll explore a new account in my daughter's name - I forgot about the R85. I can prove the money was not from me, so no probs there. I may think of putting some into an ISA too then. Now to look for the best ISA...
thank you very much - it is appreciated.

Springspab

Lazy_Ike

Just a thought. As the chances of a large win are small, and calculations indicate approx 1.33% return, (a figure you no doubt can confirm from returns so far. My 'Premium Bond Year' ends 01/03/10 return currently 1.34%) why not have NS&I re-invest any winnings into PB's so you can at least avoid the issue of cheques in your name, transfers etc.