Child savings interest & the £100 rule

busy_dad

Morning all

We have a savings account for my daughter. Myself and my wife have put money into the account as well as grandparents.

In the next year it will receive over £100 in interest. However not over £100 individually from my wife or myself.

First question is if we need to do anything in relation to HMRC or will they contact us to query?

Because money has been added from different people it seems difficult in the future to work out when the £100 limit is exceeded (as also includes added interest in the pot).

In the future if the £100 limit is exceeded by one parent will the total amount of interest earned by the account be allocated to the parent for tax purposes or just the proportion of interest from their contribution?

It seems quite complicated to work out! My wife has most of her 5k nil rate band unused each year so not worried from a tax perspective from her point of view (all future parental conts will come from her).

bowlhead99

busy_dad wrote: »

We have a savings account for my daughter. Myself and my wife have put money into the account as well as grandparents.

In the next year it will receive over £100 in interest. However not over £100 individually from my wife or myself.

First question is if we need to do anything in relation to HMRC or will they contact us to query?

You don't need to do anything as you and your wife have no tax to pay, as there isn't over £100 of income attributable to the gifts from either your wife or yourself, so none of that income would be attributed to either of you, and it would all be considered the child's. As it's all the child's, you don't need to inform HMRC that it's yours, because it isn't.

If you had exceeded the limit and some of the income was attributed to you, you should tell HMRC that you have this additional interest income beyond the amount of interest income received in your personal bank accounts.

Because money has been added from different people it seems difficult in the future to work out when the £100 limit is exceeded (as also includes added interest in the pot).

Unfortunately, mixing a parental 'settlement' (from two separate parents) with money from other people and with the child's own money (from interest the daughter earns below the limits), is not very 'clean'.

If the child's savings are going to be large and not needed until age 18, Junior ISAs are useful to avoid all this, because income on money put in one of those is not subject to tax and so it doesn't matter what source the money comes from.

In the future if the £100 limit is exceeded by one parent will the total amount of interest earned by the account be allocated to the parent for tax purposes or just the proportion of interest from their contribution?

All the interest derived from their contribution would be treated as theirs if the interest derived from their contribution was over £100.

None of the interest derived from their contribution would be treated as theirs if the interest derived from their contribution was under £100.

My wife has most of her 5k nil rate band unused each year so not worried from a tax perspective from her point of view (all future parental conts will come from her).

In that case you would seem to be OK presuming interest rates don't go up significantly resulting in the interest derived from what *you* have already put into the account, going over £100.

If the amount earned on what your wife has put in goes under £100 it is her income and she should tell HMRC that she has the income, if it would change the amount of tax she would need to pay. If it doesn't change the amount she would need to pay, no harm done if she didn't tell them..

busy_dad

Thanks bowlhead for the thorough reply, very helpful.

jimjames

As per Bowlhead considering JISA would avoid the problems of accounting for interest payments. It may also be worth thinking whether you need to keep so much cash that generates over £100 in interest and whether investing part of it might be worthwhile if your daughter is young enough. This would give the opportunity to beat inflation over the long term