Tax and the interest on children's savings

GailMc

Having used up our mini ISA allowance last year and this we are now putting money into high interest children's savings accounts with the intent that this may help our 2 sons out, if they eventually go on to university. Each of them has a Halifax savings account earning 10% interest - £100 a month each going into those (maximum allowed). Last year this meant that they each earned about £65 in interest. This year we are hoping to put about another £150 a month (on top of the £100 x2 in the Halifax) in total into the Scarborough BS Children's Savings Bond.
We believe each child can only earn up to £100 interest in anyone year, tax free, but is this from money saved from each parent? So in theory can they earn up to £200? Also, we were planning to put the £150 a month into the name of my youngest son only as my oldest will be 16 in October and therefore liable for tax or have we got that wrong as he won't be earning? As you can see, we are in a bit of a muddle about the amount of interest they can earn tax free. Can anyone clairify it for me?

Thanks

jem16

It's each parent.

Have a read at this article - it will explain in better than I can.



http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1089574348,16470,

CLAPTON

your 16 year old has his own 5225 allowance on interest and earnings before tax is paid so there is no reason why you shouldn't give him the money (except of course he may spend it)

make sure he completes a R85 for his savings a/c otherwise it will be taxed. in particular be careful that some B Soc 'upgraded' junior a/cs (i.e. under 16) to young peoples a/c (16-17) and dont carry the R85 over automatically.

jem16

CLAPTON wrote: »

your 16 year old has his own 5225 allowance on interest and earnings before tax is paid so there is no reason why you shouldn't give him the money (except of course he may spend it)

Each child does have a tax-free allowance just like everyone else. However the problem arises when the money is coming from the parent - then there is a maximum of £100 interest before the parent is taxed on it. If the money comes from grand-parents that problem does not arise.

It's basically to stop parents using their child to save tax-free.

CLAPTON

jem16 wrote: »

Each child does have a tax-free allowance just like everyone else. However the problem arises when the money is coming from the parent - then there is a maximum of £100 interest before the parent is taxed on it. If the money comes from grand-parents that problem does not arise.

It's basically to stop parents using their child to save tax-free.

yes of course, but the point i'm making is the the OP has no reason to stop saving for his 16 year old just because he is 16.

if fact the opposite is the case, because the 16 year old is not considered a child and so the OP can give him anything he likes without worrying about the interest being under 100 per annum.

jem16

CLAPTON wrote: »

yes of course, but the point i'm making is the the OP has no reason to stop saving for his 16 year old just because he is 16.

if fact the opposite is the case, because the 16 year old is not considered a child and so the OP can give him anything he likes without worrying about the interest being under 100 per annum.

I see what you are getting at and you may be correct but I'm not entirely sure.

The age 16 thing doesn't really exist as far as HMRC is concerned. A child under 16 will still pay tax if they have taxable income above the personal allowance. So although the banks allow an adult to manage/withdraw from a child's account until they are 16 and not thereafter I don't think it has any implication on the tax status.

CLAPTON

just to review and correct my previous statement

a child (i.e. under 18 and not 16 as I said) can only receive 100 in interest from money given by each parent (i.e. 200 in total) before it is taxed as the parents.

however, for money given by others (say grandparents ) this doesnot apply but the normal 'adult' tax rules apply to children at all ages i.e. they can have income up to 5125 before any tax is applicable

there is therefore no reason why the OP should not continue to give both children money.

however, the 16 year old will need to submit a new R85 if he wishes to receive interest tax free because the old R85 ceases to apply at 16 (hence my confusion about the relevance of 16 tax wise)

jem16

Now we agree.