junior account to increase savings interest?

wolvoman

So as I understand it, I can put my money into my child's savings account and as long as the interest on that money is less than £100 per year then the child pays no tax.

If I withdraw the money from the account at the end of the year, is there a tax implication for me?

jimjames

wolvoman wrote: »

If I withdraw the money from the account at the end of the year, is there a tax implication for me?

Yes. You then pay tax on the interest once it is in your name.

But if you have given the money to your child then it is their money not yours so you can't just take it back again.

wolvoman

jimjames wrote: »

Yes. You then pay tax on the interest once it is in your name.

But if you have given the money to your child then it is their money not yours so you can't just take it back again.

Junior cash ISAs have such a rule, but other junior accounts allow unlimited withdrawals. In such an account, why can't that withdrawal be back to me as a parent?

colsten

There is just 1 children's account that pays the same interest rate as the top adult account, and all you can make from it in interest for a year is £38.65. These are the Halifax Kids Reg Saver and the First Direct Reg Saver, both with 6% AER. You can put a max of £100/mth into the Halifax, and max £300/mth into FD.

All other children's savings accounts pay less AER than the next best adult account (TSB Plus, Nationwide FlexDirect), so much less that even a higher rate tax payer would make a higher return from the adult accounts than from a kid's account.

It therefore seems quite academic to discuss whether it would be right or wrong for the parent to use the funds from their child's account.

wolvoman

colsten wrote: »

There is just 1 children's account that pays the same interest rate as the top adult account, and all you can make from it in interest for a year is £38.65. These are the Halifax Kids Reg Saver and the First Direct Reg Saver, both with 6% AER. You can put a max of £100/mth into the Halifax, and max £300/mth into FD.

All other children's savings accounts pay less AER than the next best adult account (TSB Plus, Nationwide FlexDirect), so much less that even a higher rate tax payer would make a higher return from the adult accounts than from a kid's account.

It therefore seems quite academic to discuss whether it would be right or wrong for the parent to use the funds from their child's account.

Nationwide have a kids account that pays 3% on balances up to £50k. The TSB and Nationwide accounts you refer to are limted to the first £8-10k approx (allowing for multiple accounts).

PeacefulWaters

wolvoman wrote: »

Junior cash ISAs have such a rule, but other junior accounts allow unlimited withdrawals. In such an account, why can't that withdrawal be back to me as a parent?

Because you've created a trust and the child becomes the sole beneficiary of those funds.

colsten

wolvoman wrote: »

Nationwide have a kids account that pays 3% on balances up to £50k. The TSB and Nationwide accounts you refer to are limted to the first £8-10k approx (allowing for multiple accounts).

Any interest above £100 on this is taxable at your tax rate as the money came from you. So there is basically no advantage trying to (ab-)use your child's account for your own benefit. The 3, 4 and 5% adult accounts that are available cover just over £50,000 as well.

jimjames

So the interest on a 5% TSB current account will come to £100 with the maximum £2000 in it.

What is the point of using a child's account when it's such small amounts you're worrying about. Tax on that is £20.

Is it really worth breaking the law and avoiding tax for that amount of money? Even more so when better rates are already available in non-child accounts anyway.

wolvoman

jimjames wrote: »

So the interest on a 5% TSB current account will come to £100 with the maximum £2000 in it.

What is the point of using a child's account when it's such small amounts you're worrying about. Tax on that is £20.

Is it really worth breaking the law and avoiding tax for that amount of money? Even more so when better rates are already available in non-child accounts anyway.

As an additional rate taxpayer it's a bit more than £20. So 3% net is equivalent to 5.45% for me.

And of course the TSB route you mention is limited to only £4,000 of savings.

I suppose an option open to me is to put the max into my child's account without it earning more than £100 a year and leave it there. At least it's tax efficient, even if that is only about £3,300 of savings.

jimjames

wolvoman wrote: »

And of course the TSB route you mention is limited to only £4,000 of savings.

But even if you did do it you can only put £2000 in their name for tax free if you are getting 5% interest so even less than tsb.