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Tax on Interest from Children's Savings Accounts

probablynotarobot
Posts: 3 Newbie

I wanted to seek advice on the interpretation of the following from HMRC at on the gov.uk site under savings-for-children:
"if, in the tax year, the child gets more than £100 in interest from money given by a parent. The parent will have to pay tax on all the interest if it’s above their own Personal Savings Allowance."
My question is whether this means the interest earned from the parents contribution during one financial year or does it also include past financial years?
For example:
I open a savings account for my child and place £5000 in, earning £75 interests over the year (under the £100 limit). The following year I place another £5000 into the same account so at the end of the year there is a total of £150 interest earned (over the limit of £100, unless it is based on the single £5000 parental contribution made during that financial year).
If it is historic, then it makes it difficult to track how much of the money was from a parent as apposed to other sources like grandparents/interest/etc which are not taxed this way. If it is not historic, then what about when you need to move to another account for better interest, as usually there is a need to transfer the lump sum to a current account then over to the new child account, would this then count as a single lump contribution to the child in one year and incur the tax ()?
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probablynotarobot said:My question is whether this means the interest earned from the parents contribution during one financial year or does it also include past financial years?
As you say, this does put the onus on parents to keep adequate records of the source of all contributions.
It's done on a per-parent basis though, so if there are two parents then they can each contribute equally to the child account and thereby achieve a £200 threshold.
Another option to consider is to use a Junior ISA to eliminate tax issues....0 -
Thank you, it is good to clarify so I can act accordingly.
I was aware of the £100 per parent however I am a single dad so just sticking to the £100
I also have Junior ISAs for them (previously the Nationwide ones which were 3% but went down to 1% so just moved them to NS&I for 3.25%) but because this locks the money until they are 18 I also used general children's savings accounts and was wary of the £100 tax implications.0 -
https://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/families/babsi.htm
is old ( takes no account of interest now paid without deduction of tax/personal savings allowance) but explains the system.0 -
Thanks, the link does provide some additional clarity.1
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If interest is over £100 then excess is taken off your PSA. So kids earn £150 then your PSA is reduced to £450 (high rate tax payer) or £950 (basic rate tax payer).0
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probablynotarobot said:Thank you, it is good to clarify so I can act accordingly.
I was aware of the £100 per parent however I am a single dad so just sticking to the £100
I also have Junior ISAs for them (previously the Nationwide ones which were 3% but went down to 1% so just moved them to NS&I for 3.25%) but because this locks the money until they are 18 I also used general children's savings accounts and was wary of the £100 tax implications.Personal Responsibility - Sad but True
Sometimes.... I am like a dog with a bone1 -
toothdoctor said:If interest is over £100 then excess is taken off your PSA. So kids earn £150 then your PSA is reduced to £450 (high rate tax payer) or £950 (basic rate tax payer).
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cloud_dog said:probablynotarobot said:Thank you, it is good to clarify so I can act accordingly.
I was aware of the £100 per parent however I am a single dad so just sticking to the £100
I also have Junior ISAs for them (previously the Nationwide ones which were 3% but went down to 1% so just moved them to NS&I for 3.25%) but because this locks the money until they are 18 I also used general children's savings accounts and was wary of the £100 tax implications.0
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