Childrens Savings Accounts

kingofhighc

Hello fellow MSE fans,

Looking at Childrens Savings Accounts and wondered what the best solution to the following scenario is;

We are currently paying £60 per month into Little Rock Savings Account for our child but with accumulated interest over the years, he is in danger of "earning £100" interest this year, which will then taxed at parental rate according to HMRC....

Should we;
a) Transfer "capital" money into our ISA (not paid anything in this year) and set up another savings account....e.g. Halifax Regular Saver
b) Split his money into several childrens accounts
c) Open to other suggestions.....

Many Thanks

jimjames

As long as you don't earn higher rate tax then there is still no additional payment to make. If one of you is standard rate taxpayer then putting the account in their name will avoid additional liability.

Alternatively an ISA will ensure it remains tax free regardless of your tax situation.

opinions4u

Get grandparents to make the savings for him. Then interest earned from the savings isn't taxable as your income. 6% in the Halifax Kids Regular Saver and then move it in to something better at the end of each year is the way to go.

(HMRC are unlikely to take a look at the account unless the amounts involved are significant though, so while you should declare it, don't lose sleep over it!).

(a) Child trust fund? Wait for Junior ISAs to happen?
(b) Changes nothing as the tax situation is based on the total interest paid.

jimjames wrote: »

As long as you don't earn higher rate tax then there is still no additional payment to make. If one of you is standard rate taxpayer then putting the account in their name will avoid additional liability.

Alternatively an ISA will ensure it remains tax free regardless of your tax situation.

That is incorrect. As soon as £100 a year is passed the whole amount is taxable at whatever rate the parent who provided the funds pays.

Mikeyorks

I wouldn't fret too much over the £100 interest limit. I've never known HMRC call it in yet ..... it's mainly there to inhibit parents laundering their own savings under the additional personal allowance of the child. And there's no way I'm aware of for you to 'declare' it to HMRC formally. It's not on the SA Return nor on the P810 (PAYE)

But if you have unused ISA allowances of your own then it makes sense to put the capital element there (fragmenting the childs accounts doesn't get over the £100 threshold as it's not 'per account'). It has the additional benefit that you retain jurisdiction over the funds until you choose otherwise. As a parent who's seen my 'little angel' throw away £10k in savings in his first few months at Uni ..... the last bit is important. As it leaves a nasty taste that's best avoided.

cherry-picker

I'd set it up using the child trust fund mechanism in their name. Although this does run the risk of them cutting and running with the funds when they hit 18. I've used this for my kids and have decided that I'm going to have to trust them to give me the money when it matures so that I can spend it on them as I deem appropriate, rather than them just going on a spending spree.

An ISA in your name is an alternative if you're not using you're allowance as it gives you full control of the cash. Just remember; If you go for a cash ISA for example and ring fence that money for your child, but are not contributing your full entitilment into that account you can't set up another cash ISA in the same tax year in your name. You only get one cash ISA per person that you can invest in so if you want to save in an ISA for yourself as well then this may be restrictive.

dustieb45

I'm after some help too.... I pay regularly into my son's halifax account. I asked them the other day if this was the best account for him to earn interest. They said no and referred me to speak to someone about the regular savings account. Unfortunately I can't transfer the lump sum into this account to get the better interest rate.

My question is, does anyone know of any accounts where I can put my son's money and earn a decent interest rate for him, appreciate that all interest rates are pretty pants right now... but any advice would be helpful.

Thanks

Chrissie

ultrawomble

Do you want instant access or happy to tie it up in fixed rates?

jimjames

opinions4u wrote: »

That is incorrect. As soon as £100 a year is passed the whole amount is taxable at whatever rate the parent who provided the funds pays.

Ok, I'll clarify, I was working on the basis that basic rate tax already paid. If you are a basic rate taxpayer then if interest/dividends have already had tax paid then there is no additional tax payment due. If you get the interest (not possible with dividends) gross then even as a basic rate taxpayer you would need to declare over £100 of interest.