Childrens savings and the 100 rule to avoid tax

BeachNut

Understand the limit is £100 annual interest from gifts made by each parent. If in year 1 the child earns £40 in interest, how is the interest treated in year 2 that is earned on this £40 ? Is it treated in the same way as the underlying gifts that generated the £40 or, since it technically wasn't a gift but an earning from the building society, is it excluded from the £100 limit ? Thanks.

xylophone

http://www.northernrock.co.uk/savings/learn/childrens-accounts/
http://www.hmrc.gov.uk/tdsi/example5.htm
http://www.myeggnest.com/info/Children-and-Taxation.aspxSee information under £100 rule.

oramgepekoe

Up to what child's age does this £100 rule apply - 16 or 18?

xylophone

Up to what child's age does this £100 rule apply - 16 or 18?

http://www.hmrc.gov.uk/tdsi/children.htm
£100 rule
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. A child cannot claim back any tax on that income. Nor can interest be paid without tax taken off.

The £100 rule applies to young people until they reach eighteen or marry (whichever comes first).

The £100 rule applies separately to each parent. It does not apply to gifts given by grandparents, other relatives or friends.

realaledrinker

Would love to hear if anyone has ever fallen foul of this rule with HMRC?