How do you manage this 'not more than £100' of interest for kids, from parents money?

silvermum

I'm getting into a bit of a tizz about this, and hope someone can help?

Since their birth, we have been saving the Child Benefit money directly into an account for our eldest, and periodically transferring a fair proportion of it (based on age) into another account for our youngest.

When relatives have give cheques for birthdays etc these have also gone into the account.
My father (kids' grandpa) also regularly gives me cash which I also put into their accounts, as we/they don't need it on current day basis, but I figure it would be good to invest for the future.

The problem is, that the children now have sums of about £10k each, in poor-rate children's saving accounts (0.75% :eek:)
I know I have to move it to get a better rate, but I'm so confused about a number of things:

- I really don't know (of the £10k) how much was 'given' by my husband and I (through donating the CB) and how much came from GPs/friends etc.
Even if I could work it out, how do I calculate the compound interest etc - feels like a HUGE TASK!

- How should I manage this for the future? Should I just stick to e.g. NS&I tax free bonds at say 2.5% to avoid having to calculate the tax I owe HMRC etc?
Or should I be sticking a small amount (which will never earn more than £100 in a single year) into a current account each (e.g. Northern Rock's Little Rock at 3%) and transfer the interest out, so that it doesn't go above £100 per year)?

Or something else entirely?

I am a lower rate taxpayer (Hubby is higher rate) and we have used our own ISA allowances.

I guess it's this whole '£100 interest limit from parents' money' which I'm getting in a tizz about - seems really hard to manage/monitor?

But now we know that Child Benefit is on its way out for us, I want to maximise the beneoft while I can...

<FRAZZLED>

HappyMJ

Or you could just pay tax on it at source....Tax is 20%. Is it really a huge amount to pay? Put the excess in the name of the parent who earns less.

CLAPTON

if the accounts are in your own name (and not in the children name or in trust) then you should be paying 20% (or 40%) tax anyway

if you want to separate grandparent /friends money then simply open a new a/c in each childs name and keep the money separate

Loughton_Monkey

In your situation, with 'full' ISA's, then I think the NS&I Children's bond is just what you are looking for.

JustKeepSwimming_2

How does this £100 interest limit from parents work if the parent is also a non tax payer?

JimmyTheWig

silvermum wrote: »

I know I have to move it to get a better rate, but I'm so confused about a number of things:

- I really don't know (of the £10k) how much was 'given' by my husband and I (through donating the CB) and how much came from GPs/friends etc.
Even if I could work it out, how do I calculate the compound interest etc - feels like a HUGE TASK!

Firstly, don't let this put you off getting a better rate. Even if you have to pay 20% tax on the interest, a better rate would still give you more than you're getting at the moment.

In terms of the split, I think you will have to err on the side of caution.
Make a note now of any money that you know has gone into each account that wasn't given by you and your husband. You will have to assume that anything else was given by you.
The easiest thing, then, would be to move the amount given by others into a seperate account (so each child will have two accounts) then you don't need to worry about splitting the interest.

If one parent was a non-tax payer then the interest could be put in their name and no tax would be payable.

Loughton_Monkey

JustKeepSwimming wrote: »

How does this £100 interest limit from parents work if the parent is also a non tax payer?

Tax status of parents has little to do with it.

1. Children can earn huge amounts of tax free interest on cash in their own names. But

2. For fairly obvious reasons, they are not allowed to earn more than £100 interest (tax free) on money 'donated' by parents.

With the rule, tax-paying parents cannot avoid significant tax by transferring assets to children.

Parents who do not pay tax would have no incentive to do so anyway. They can invest tax free themselves.

silvermum

JimmyTheWig wrote: »

In terms of the split, I think you will have to err on the side of caution.
Make a note now of any money that you know has gone into each account that wasn't given by you and your husband. You will have to assume that anything else was given by you.
The easiest thing, then, would be to move the amount given by others into a seperate account (so each child will have two accounts) then you don't need to worry about splitting the interest.

Yes - of course - this would be the best thing to do, wouldn't it?

I'm still uncertain about a few things though:

- Would the money coming from Child Benefit be deemed by HMRC to have just come from me, or from both my husband and I, and so would be interest allowed to be earned in fact be £200?

- Also, if I set up another account just for contributions from aunties/grandparents etc how do I prove that the money going into this account IS from them?
With cheques it's obviously traceable back, but the problem with the money from Grandpa (my dad...) is that he just gives me £20 notes when he comes over. He doesn't really 'do' cheques or standing orders etc - he's quite elderly - and it would seem rude asking him to....
I wonder what the HMRC would accept as 'proof' ?

The existing accounts are currently in the kids' names by the way, so they are being paid interest (what little there is!) gross....

HappyMJ

This site says it's £200 for a couple who contribute equally. My argument would be that the Child Benefit is for the benefit of the child and is household income therefore you have contributed equally.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10013916

Also, they don't include regular pocket money which essentially is what this is. It's for larger amounts that produce interest higher than £100 that prevents the child from registering for gross interest that you need to claim the tax back from.

silvermum

HappyMJ wrote: »

Also, they don't include regular pocket money which essentially is what this is. It's for larger amounts that produce interest higher than £100 that prevents the child from registering for gross interest that you need to claim the tax back from.

Thanks for your reply - can you explain what you mean by the above though, and where you found reference to it?

I still don't see how the HMRC 'police' this? If I have an account for each child for 'relatives' gifts, and I physically walk to the bank each week and deposit £20 from Grandpa - how do the Revenue know that that is £20 from Grandpa, and not me?? (Not suggesting I would do this of course!)

premierfella

HMRC don't police it as such. But if you are unlucky enough to be flagged up for a tax audit, you will find HMRC will not be amused if you try and suggest that the £10k has built up from non-parental cash gifts.

The onus is on you to show them that the children's money wasn't from you should HMRC decide to ask. If you can't show that, you run the risk that they will treat it as your money for tax purposes. The £100 per parent per child dispensation is presumably designed with small cash birthday gifts in mind.

Any significant amounts you get for the children should really be via cheque or bank transfer if possible so that you have a trail you can show HMRC in the (probably unlikely) event that they request proof that the money is not really your savings.