Tax on Childrens savings.

Speculator

Every child has a tax free allowance of £5035 for the current tax year. I understand that each parent has a £100 limit on interest earned but this limit don't apply to friends, uncles, aunties or grandparents.

Therefore, can I assume that granddad can give his grandchild £96700.00 earning interest at 5% =£4835 total interest pa and each parent can give £2000 earning interest at 5% =£200 total interest pa?

I guess inheritance tax would be payable on the £96700 if granddad dies within 7 years.

Robert_Sterling

I think that your understanding of the facts is correct.

However do not forget the 10% band

and the fact that if one of the poarents does not use up their own personal allowance the money given to the child can be taxed at that parents tax rate which might be 0%

Speculator

Thanks Bob, just wanted to do some forward planning. First child due late March.

Gambler

Our children recently had gifts from their great grandmother but the cheque was paid to us and then we paid into the childrens accounts.

Would this count as a gift from non-parents as we can show the trail?

Thanks

Speculator

Not sure, it may count as a gift to you because the cheque was made payable to you and not to the children.

MarkyMarkD

I suspect that the reality is that HMRC aren't very bothered about any of this unless you are blatantly tax-avoiding. I can't see them having a go at Gambler for this chain of clearly-linked transactions.

jonnyw_2

On the other hand if the revenue do think its a gift from parent to child under 18 then im pretty sure that the consequences are that both income and capital gains arising are taxed as if they are the parents not the childs so i would be a bit careful about the route the money takes.