Child saving accounts

Welshperson

In their own article on this site (see junior isa page, is wont let me post a link) it is suggested that children pay tax on their savings like adults, and can earn a certain amount in interest each year. However most children's accounts (eg Halifax) are set up as trusts as the child is too young to manage an account and it seems like "bare trusts" are taxed at the rate of the person running the trust (the parent) not the child. Can someone clear up this confusion? 

xylophone

A child has a personal tax allowance, and may be eligible for  starting rate for savings and personal savings allowance just like an adult.

However, if a parent has made a gift to his unmarried minor child and it has been invested in non tax privileged account ( a JISA is tax privileged), then any interest over £100 arising on the account is taxed as though it belonged to the parent.

https://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/families/babsi.htm

Above was pre interest paid gross on virtually all accounts and pre PSA but the "£100 rule"
remains the same.

 

MacPingu1986

OP - What Xylophone said is all you need to know - don't get yourself caught in analysing whether this is a bare trust or not.

mattowen1983

I wouldn't bother with anything the high street banks are offering. You can save into a NEXO account and get 4% interest or 5% if you lock it away minimum 3 months. Or buy NEXO tokens and savings can be at a massive 12%!! Money is protected too.

eskbanker

mattowen1983 said:

I wouldn't bother with anything the high street banks are offering. You can save into a NEXO account and get 4% interest or 5% if you lock it away minimum 3 months. Or buy NEXO tokens and savings can be at a massive 12%!! Money is protected too.

No, it isn't, at least not in the sense usually associated with savings accounts, which are protected by a binding and meaningful deposit guarantee scheme (FSCS in the UK)....

Welshperson

xylophone said:

A child has a personal tax allowance, and may be eligible for  starting rate for savings and personal savings allowance just like an adult.

However, if a parent has made a gift to his unmarried minor child and it has been invested in non tax privileged account ( a JISA is tax privileged), then any interest over £100 arising on the account is taxed as though it belonged to the parent.

Above was pre interest paid gross on virtually all accounts and pre PSA but the "£100 rule"
remains the same.

 

Thanks, but that's where the confusion lies.
Money from a parent (regardless of which account it is in, aside from an isa) that earns over £100 interest anywhere is taxed at the parent rate, I get that.
However if I open say a junior savers account (eg a kids regular saver) for the grandparents to pay in a few pounds a month, that is a deemed a trust account in my name and hmrc will tax it as if it is my account/money. And there is a whole set of hmrc forms to be filled in. 

eskbanker

Welshperson said:

However if I open say a junior savers account (eg a kids regular saver) for the grandparents to pay in a few pounds a month, that is a deemed a trust account in my name and hmrc will tax it as if it is my account/money. And there is a whole set of hmrc forms to be filled in. 

Not my understanding - it's the beneficiary not the trustee who's liable for tax, where are you reading otherwise?

The issue of parental liability for tax if breaching the £100 rule is a separate matter....

xylophone

No.
You open an account in your child's name with you as signatory.
This does make you a Trustee of the account.
If  the capital in the account is provided by anybody other than a parent, the £100 rule does not apply.

If there ever were a HMRC query, you would simply demonstrate that the money came from a source other than a parent.

With regard to a grandparent wishing to provide the money in  a Halifax account, he/she could actually open  and contribute to the account - see
https://www.halifax.co.uk/savings/kids.html

https://www.gov.uk/savings-for-children#:~:text=There's usually no tax to,their own Personal Savings Allowance.

xylophone

See also
https://www.thepfs.org/learning-index/articles/investing-for-children-part-1/56818

Welshperson

Ok thanks. I think I was getting confused by statements such as "Please note: HMRC have parental settlement rules, so where a trust is set up by a parent for their minor unmarried child(ren), income tax will continue to be assessed against the parent/s where the income exceeds £100 pa (£200 pa if a joint gift)."
www.theprivate office.com/specialist-services/bare-trusts 

(had to include a space, won't let me post links!) 
Which says if the parent set the trust up then the £100 rule applies, which I took as overriding any other provisions, ie it doesnt matter where the money comes from when it is in a "trust" if it earns £100/yr interest at any point before they are of age it will be taxable. Given interest rates that won't happen for a while but did then also seem like you would have to do taxself assessments etc.
It seems I was reading too much into "setting up a trust".