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

debbie42

My children had a cash gift from their grandparents, which did produce more interest than would have been allowed had it been from me (when rates were higher!). I kept a record of it, and all larger cash gifts they have received, just in case HMRC ever asked. They never have, which doesn't surprise me unduly.

HappyMJ

silvermum wrote: »

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!)

You need to ring them on the advice line to get accurate information. Tell them you give your children an amount which is equal to the child benefit every week along with their grandparents gifts and it's accrued to over £10,000 and is now earning interest over £100 and see what they say. You could also say that the amount you give your kids is in return for work performed such as keeping their room clean and helping out around the house. i.e it's not a gift it's a payment for services.

You could also write a letter to your tax office for further clarification which can then be used as evidence in a tax audit.

The tax office isn't looking for people skipping small amounts of tax so if the tax that should have been paid is only £10 on £50 of extra interest per year then they really don't care. It's not worth their time to investigate.

JustKeepSwimming_2

Loughton_Monkey wrote: »

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.

I follow this, but am possibly having a senile moment as I can't work out what would happen in the following case! Sorry if I'm being thick!

I've recently become a non-tax payer due to a drastic decrease in my hours & needing to be more at home for my child. I've always saved for her & now have accumulated enough in her account that could give her over just £100 interest if I move it to a decent rate account. AIUI tax would be payable under the £100 rule but is there any way around this as if the same money was in my account it wouldn't be taxed as any interest on it would still leave me well undermy personal allowance. Or have I misunderstood?

I want to keep it in her name but don't want to lose out financially & pay tax which I shouldn't - what should I do? Thanks.

Reaper

JustKeepSwimming wrote: »

AIUI tax would be payable under the £100 rule but is there any way around this as if the same money was in my account it wouldn't be taxed as any interest on it would still leave me well undermy personal allowance.

No, the £100 rule states that if the interest exceeds £100 then it is taxed as if it is the parent's money. So if you are a non-taxpayer then the £100 rule will have no effect (unless it lifts you out of the tax free band).

Here is a quote from the HMRC web site:

There are special rules if a parent has given savings to their child. Where gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is taxed as the parent’s income.

silvermum

This is an interesting discussion.... and one I haven't been able to find discussed much elsewhere?

Is this just a bit of a 'grey' area do you think? are people really adding up the odd £50 extra interest earned on their kids' accounts and declaring it to the Revenue, or do most people just not bother?

As HappyMJ says - surely this isn't the level of unpaid tax the HMRC are going to be focusing their efforts on?

JimmyTheWig

silvermum wrote: »

- 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?

Given that you are married then assets are freely moved between the two of you. Therefore you can deem this to be split in any way which you like. 50/50 sounds the best way in this instance.

- 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' ?

I would say keep decent enough records and you'll be fine.
If you get monthly paper statements then I'd suggest anotating them with when and where the money came from. If not, just keep your own spreadsheet / paper list.

Reaper

To be honest I don't think the Inland Revenue care about the odd hundred quid.

I think it is more aimed at big earners. Imagine you are a multi-millionaire paying higher rate tax, without the rule you could put £1 million into your child's account paying 4% interest and only pay basic rate tax on it.

While the principle is ok the limit has been set stupidly low and is in serious need of revision.

silvermum

Reaper wrote: »

While the principle is ok the limit has been set stupidly low and is in serious need of revision.

I TOTALLY agree (about the limit being too low..)
Perhaps we should all lobby our MPs to raise the amount our kids can earn tax free from parental gifts, seeing as they are going to take away child benefit?