Saving goverment benefits for child tax free

CustardCream13

Hello - I have a question, hopefully this is the right place to ask...


My daughter is 1 year old and we have just found out that she has been awarded lower rate Disability Living Allowance. It is about £20/week. As her future is a little uncertain my husband and I have decided to save it for her. We have also been saving her child benefit, also about £20/week.


I have opened a Halifax regular saver and a junior saver for her. Currently, her benefits are being paid into my bank account and I transfer the money over each month.


I understand that once the savings, received from parents earn over £100 in interest they will be taxed. With the current interest rate of 3%, we are some way of even meeting this limit, but hopefully over the years saving approx. £2k / year we will quickly build her a nest egg.


Will I be able to avoid paying tax on the interest in these circumstances? Will it be acceptable if I can show that the money is coming from benefits for her? Would it be better to ask for the benefits to be paid directly into her accounts instead?


Hope ive explained myself properly..
Thanks

jimjames

If it's in a JISA then it isn't taxable.

For such a length of time (if it's for when she is 18) then you may be better off using equities than cash.

wingchun8

like jimjames seys use a savings account (isa) and you shouldnt be as she is only 1 besides junior accounts are not taxable that i know of but you should check with the bank

CustardCream13

Thanks for your replies


I did not necessarily want to use as an ISA as it will be locked away until she is 18 (im thinking we may use it to buy an adapted bike etc or possibly extra therapies for her as she gets older).


Her Halifax junior saver pays 3%


I believe children's accounts are taxed if they earn more than £100 interest / year as a result of money given to them by their parents. (To avoid parents using childs accounts for their savings) This is what I want to avoid.

PETIE

CustardCream13 wrote: »

Thanks for your replies


I did not necessarily want to use as an ISA as it will be locked away until she is 18 (im thinking we may use it to buy an adapted bike etc or possibly extra therapies for her as she gets older).


Her Halifax junior saver pays 3%


I believe children's accounts are taxed if they earn more than £100 interest / year as a result of money given to them by their parents. (To avoid parents using childs accounts for their savings) This is what I want to avoid.

Not all ISA's are locked, I can deposit and withdraw at whim on my ISA

CustardCream13

I thought that junior ISAs were locked away until the child turned 18? No?

xylophone

The Child Benefit is paid to the parent who claims it and is therefore his/her money.

If the parent chooses to give this to the child and the money is deposited in an account in the child's own name, then the interest will be caught by the £100 rule.

Is DLA actually "owned" by the child rather than a benefit "owned" by the parent to enable him/her to provide additional help for the child?

If it is the child's money, and saved in the child's account, then any interest would seem not to be caught by the £100 rule?

Clearly the money in this account would have to be used for the disabled child's personal benefit.

PETIE

CustardCream13 wrote: »

I thought that junior ISAs were locked away until the child turned 18? No?

That I'm not to sure but, could you not open one in your own name and keep the savings in that, interest free and move money around at will.

colsten

PETIE wrote: »

Not all ISA's are locked, I can deposit and withdraw at whim on my ISA

You can deposit into JISAs up to the annual allowance but not make any withdrawals before age 18 unless a terminal illness claim is agreed or following closure of the account after the death of the child

jimjames

PETIE wrote: »

Not all ISA's are locked, I can deposit and withdraw at whim on my ISA

Adult ISAs but that's not the case for a Junior ISA (JISA) as mentioned

jimjames

But if you put it into your own ISA then it will be tax free.

You can invest in exactly the same funds in an adult ISA as Junior ISA, in fact there is probably more selection in the adult version.