Childrens savings

pwoodroffe

Hi all,

Martin states in one of his features on childrens savings
"In practical terms this currently means you could put up to £1,900 in the 5.05% top paying children's account, and it wouldn’t be taxed, as that would generate around £96. Just to clarify, this doesn’t mean £1,900 every year; it’s the interest generated from all cash given in this and previous years".

When there are new tax allowances each year, why is it the case that you can only save £1,900 tax free the one time.

thanks
Paul

lipidicman

So that a parent could not have an extra £1900 tax free savings by using their kids.

Remember each parent can give £1900 (AFAIK)
also you can gift money to other relatives (in line with CGT rules) and then they could deposit it for the children (again I think this is legit?)

Silver_Lilly

:question: This is my first post,im not sure if its in the right place!
I want to save money for my new baby in a high interest savings account.
However i am confused as to if it needs to be a CHILDRENS ACCOUNT in order to not pay tax on it,or simply any account in her name.

lipidicman

As discussed above a childrens account will not make it tax free!

If your child earns less in interest than the personal allowance (£4.6k ish) then she is OK. But if the money is from her parents and it earns over £100 (£200 for a couple AFAIK) in interest then the money is taxed as if it is the parents.

Viz_2

I don't fully understand ?

Can the child earn only £100 in interest before they are taxed. Or are you saying that a child can earn upto their personal tax allowance of £4.5k ish in interest ?

lipidicman

Up to £4.5k like everybody else EXCEPT if the money came from their parents. If so, and the interest earned is more than £100 then the money is taxed as if it is the parents (this is essentially a block to a 'tax loophole' without this no parent would pay tax on their first £90,000 of savings per child!)

Silver_Lilly

Thats helpful thanks.

Although i am still confused as to wether money saved per month by granparents would be best in a ordinary high interest account or a lower interest childrens account.

We would then open a second account to save for her for ourselves which account type would be best then?

Sorry if i am missing an obvious point somewhere i'm fairy new at this!

Viz_2

Thankyou for clarifying !

So can i give my parents some money and ask them to pay into an account for my daughter ?
In theory upto £4.5k a year without paying tax on interest earned ?

lipidicman

Viz wrote:

Thankyou for clarifying !

So can i give my parents some money and ask them to pay into an account for my daughter ?
In theory upto £4.5k a year without paying tax on interest earned ?

Not really no (although I dont know how the IR would know that you had done this)

And the £4.5k refers to the interest earned (not the capital)

So to earn £4.5k interest we are talking about £90k. If you gave this to someone it would be subject to capital gains tax (CGT) edit - I meant inheritance tax (as it is above the gift limit). Even if you kept below the limit I am sure that this isnt allowed as it makes a joke of the limits for parents saving tax-free for children (as anyone could go through a third party!)

Viz_2

lipidicman wrote:

So to earn £4.5k interest we are talking about £90k.

Ha ha. I wish i could.

I pay £65 p/m into my daughters Halifax account. She has over £3k in there now. My plan now is to either transfer some into Premium Bonds or open a National Savings 5 year Bond.

I would carry on paying into the Halifax account monthly, but she would not go over the £100 interest limit.

How does that sound ?

lipidicman

Anything over £1900 is likely to attract more than £100 in interest, so the halifax account will be subject to tax at your tax rate (if you gave her all the money). It is NOT £1900 saved per year, it is TOTAL. If she gets more than £100 interest in a year, it gets taxed.

The premium bonds prizes are tax free, but I dont know if children can hold them