Premium bonds and savings for children over 16

Peppadog

We recently sold our house and are not in a position to purchase again just yet. There is equity from the house sale that we are looking to invest in short-term savings via premium bonds and instant access savings accounts.

We want to put aside some of the equity for our children (16 & 19) for uni/house deposit, etc when the time comes. Can we buy them £10k premium bonds each without there being any tax implications for us and them? One is still at school and the other has a full-time job.

Thanks for any advice.

HappyMJ

Premium bonds are rubbish.....my opinion....

There is no guaranteed interest or return.

The "interest" earned is gambled on lottery tickets every month and you may or may not win.

I would not encourage anyone especially youngsters to gamble at all even if it just with the interest. If I ever catch my daughter gambling she loses her allowance. I am strongly against gambling seen too many people destroyed by it.

Fixed interest savings account will always pay out and they will pay out more on average than a premium bond.

The average return on a premium bond if you hold the maximum £30,000 worth and you do not win a big prize is 0.8%. The average including all the large prizes is 1.5%. The rate can easily be beaten.

Paying tax is not always bad. Returns can be much better.

xylophone

You could give them the money for the premium bonds - as any income (prize money) on these is tax free there is no income tax implication.

However, there might be an IHT consideration. http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

Bear in mind that once given the money belongs to each child absolutely.

Should you wish to consider interest bearing accounts, the 19 year old could use his ISA allowance - the rest could be saved in an account offering the best interest rate available. As he works full time it seems likely he is a taxpayer so the rest of the interest would be taxed - he could put the balance in an ISA in the next tax year.

With regard to the 16 year old, possibly the JISA could be used - see http://www.halifax.co.uk/isas/ - £3600 this year and the same next. This would be tax free.

If outside JISA, see "£100 rule" here http://www.hmrc.gov.uk/tdsi/children.htm

westy22

Should you wish to consider interest bearing accounts, the 19 year old could use his ISA allowance - the rest could be saved in an account offering the best interest rate available. As he works full time it seems likely he is a taxpayer so the rest of the interest would be taxed - he could put the balance in an ISA in the next tax year.

With regard to the 16 year old, possibly the JISA could be used - see http://www.halifax.co.uk/isas/ - £3600 this year and the same next. This would be tax free.

The 16 year old can have a full adult cash ISA as well as the JISA - potentially £18,500 sheltered from tax between now and mid-April 13.

Nicholas-bloody-Parsons

HappyMJ wrote: »

Premium bonds are rubbish.....my opinion....

There is no guaranteed interest or return.

Fixed interest savings account will always pay out and they will pay out more on average than a premium bond.

The average return on a premium bond if you hold the maximum £30,000 worth and you do not win a big prize is 0.8%. The average including all the large prizes is 1.5%. The rate can easily be beaten.

I agree, premium bond are pretty awful place to put money; unless you want the security of being government backed.

It depends how long the money you want to leave on deposit. If you have a long term horizon, say 5 or more years, then you could consider a cautiously managed income equity fund, other wise you are better off in a cash isa.

Dont forget, you can only "gift" £3k per tax year to completely avoid tax.

xylophone

The 16 year old can have a full adult cash ISA as well as the JISA

But see http://www.hmrc.gov.uk/isa/faqs.htm#12an Can I put money into an ISA for my child