Child savings advice

refluxer

If you're not interested in investing the money and prefer to stay in cash, then one big advantage to children's savings accounts and Cash Child Trust Funds / Junior ISAs used to be that many paid much higher interest rates than adult accounts - I used to have savings account for my kids (not that long ago) that were paying 3-4% at a time when adult accounts were nowhere near that.

Sadly, while the rates on adult savings accounts have been increasing steadily this year, many children's savings accounts seem to have been left behind and while there are some that offer decent rates, many now only pay slightly more and some (such as the 1% Halifax account you mentioned) pay less than you can get in an adult easy access account.

Junior Cash ISAs can be a good way of both eliminating any tax implications and getting a decent interest rate, but they come with the downsides I mentioned above.

ZeroSum

MX5huggy said:

Yes if they earn more than £100 of interest on money their parents haven given them then that interest is considered to be earned by the parent. 

https://www.gov.uk/savings-for-children

Money from other sources and in Junior ISA is excluded. 

I’ve decided that child saving is an overrated savings area, it’s a nice idea but if you do it, you end up with a complicated situation of the money being theirs just when they might not have the skills to handle it in the way you expect. Or you consider it yours and end up in a pickle trying to spend it for them. Unless you are using all your own ISA allowance every year (£20000) I would focus on that for a Stocks and Shares ISA if saving for 10 years plus. 

How do they prove that though?
I've gone into branch & deposited cash, but all the money is from relatives.
Unless I do a bank transfer or write a cheque then it's impossible to prove I'm the original source of funds

MX5huggy

ZeroSum said:

MX5huggy said:

Yes if they earn more than £100 of interest on money their parents haven given them then that interest is considered to be earned by the parent. 

https://www.gov.uk/savings-for-children

Money from other sources and in Junior ISA is excluded. 

I’ve decided that child saving is an overrated savings area, it’s a nice idea but if you do it, you end up with a complicated situation of the money being theirs just when they might not have the skills to handle it in the way you expect. Or you consider it yours and end up in a pickle trying to spend it for them. Unless you are using all your own ISA allowance every year (£20000) I would focus on that for a Stocks and Shares ISA if saving for 10 years plus. 

How do they prove that though?
I've gone into branch & deposited cash, but all the money is from relatives.
Unless I do a bank transfer or write a cheque then it's impossible to prove I'm the original source of funds

Have you ever been subjected to a HMRC investigation? No neither have I. But they don’t have to prove anything you would be required to prove the source of the funds. Remember £100 of interest at 2% needs £5000 of deposits not a bit of birthday money from relatives. 

cloud_dog

With HMRC it is rarely a case of them proving it, it is usually the case that you need to provide proof of where it came from.

So, for example, if you transferred money into a grandparents account and they wrote a cheque for the money a scan/photo of the cheque would be good evidence 

refluxer

I try and get relatives to pay birthday money directly into my kids' accounts via online banking for exactly this reason.

ZeroSum

MX5huggy said:

ZeroSum said:

MX5huggy said:

Yes if they earn more than £100 of interest on money their parents haven given them then that interest is considered to be earned by the parent. 

https://www.gov.uk/savings-for-children

Money from other sources and in Junior ISA is excluded. 

I’ve decided that child saving is an overrated savings area, it’s a nice idea but if you do it, you end up with a complicated situation of the money being theirs just when they might not have the skills to handle it in the way you expect. Or you consider it yours and end up in a pickle trying to spend it for them. Unless you are using all your own ISA allowance every year (£20000) I would focus on that for a Stocks and Shares ISA if saving for 10 years plus. 

How do they prove that though?
I've gone into branch & deposited cash, but all the money is from relatives.
Unless I do a bank transfer or write a cheque then it's impossible to prove I'm the original source of funds

Have you ever been subjected to a HMRC investigation? No neither have I. But they don’t have to prove anything you would be required to prove the source of the funds. Remember £100 of interest at 2% needs £5000 of deposits not a bit of birthday money from relatives. 

I'm well aware of the maths, however with our child being my parents only grandchild it's not out of the question that they'll have gifted enough within 5 or 6 years (more so with rates rising)

Exodi

ZeroSum said:

MX5huggy said:

Yes if they earn more than £100 of interest on money their parents haven given them then that interest is considered to be earned by the parent. 

https://www.gov.uk/savings-for-children

Money from other sources and in Junior ISA is excluded. 

I’ve decided that child saving is an overrated savings area, it’s a nice idea but if you do it, you end up with a complicated situation of the money being theirs just when they might not have the skills to handle it in the way you expect. Or you consider it yours and end up in a pickle trying to spend it for them. Unless you are using all your own ISA allowance every year (£20000) I would focus on that for a Stocks and Shares ISA if saving for 10 years plus. 

How do they prove that though?
I've gone into branch & deposited cash, but all the money is from relatives.
Unless I do a bank transfer or write a cheque then it's impossible to prove I'm the original source of funds

ZeroSum said:

MX5huggy said:

ZeroSum said:

MX5huggy said:

Yes if they earn more than £100 of interest on money their parents haven given them then that interest is considered to be earned by the parent. 

https://www.gov.uk/savings-for-children

Money from other sources and in Junior ISA is excluded. 

I’ve decided that child saving is an overrated savings area, it’s a nice idea but if you do it, you end up with a complicated situation of the money being theirs just when they might not have the skills to handle it in the way you expect. Or you consider it yours and end up in a pickle trying to spend it for them. Unless you are using all your own ISA allowance every year (£20000) I would focus on that for a Stocks and Shares ISA if saving for 10 years plus. 

How do they prove that though?
I've gone into branch & deposited cash, but all the money is from relatives.
Unless I do a bank transfer or write a cheque then it's impossible to prove I'm the original source of funds

Have you ever been subjected to a HMRC investigation? No neither have I. But they don’t have to prove anything you would be required to prove the source of the funds. Remember £100 of interest at 2% needs £5000 of deposits not a bit of birthday money from relatives. 

I'm well aware of the maths, however with our child being my parents only grandchild it's not out of the question that they'll have gifted enough within 5 or 6 years (more so with rates rising)

It's generally accepted that parents are responsible for their children and by extension would be responsible for a childrens savings account, even if they are not the beneficary of it.

I think it's pretty unlikely that a child would amass a sizeable wealth in an account only the parents can access, without the parents knowledge.

But I get what you're saying. What if wealthy Nanny May is feeling particularly generous and decides to deposit £10k for a childs birthday without the parents knowledge - if the parents didn't realise, yes they'd have to personally pay tax on the interest. But I expect this situation is unlikely at best plus we can't reasonably expect to get away with 'I've no idea where the money in my childs account of which I'm the only person that has initital access to the bank details came from'.

refluxer

Exodi said:

But I get what you're saying. What if wealthy Nanny May is feeling particularly generous and decides to deposit £10k for a childs birthday without the parents knowledge - if the parents didn't realise, yes they'd have to personally pay tax on the interest. But I expect this situation is unlikely at best plus we can't reasonably expect to get away with 'I've no idea where the money in my childs account of which I'm the only person that has initital access to the bank details came from'.

That's not correct. A parent isn't responsible for (potentially) having to pay tax on interest over £100 earned in a child's account that has been given to them by someone else. In fact, the official government advice is that money given by a grandparent, friend or other relative is specifically excluded from this potential tax liability.

Exodi

refluxer said:

Exodi said:

But I get what you're saying. What if wealthy Nanny May is feeling particularly generous and decides to deposit £10k for a childs birthday without the parents knowledge - if the parents didn't realise, yes they'd have to personally pay tax on the interest. But I expect this situation is unlikely at best plus we can't reasonably expect to get away with 'I've no idea where the money in my childs account of which I'm the only person that has initital access to the bank details came from'.

That's not correct. A parent isn't responsible for (potentially) having to pay tax on interest over £100 earned in a child's account that has been given to them by someone else. In fact, the official government advice is that money given by a grandparent, friend or other relative is specifically excluded from this potential tax liability.

Then I guess as you said above, it'll be important to keep details of any non-parent transactions.

Seems odd, I don't know what would stop a parent giving £1k to their mum to send to their childs bank account,  circumventing the interest cap.

EDIT: I guess this is all purely thereotical as any parents/grandparents in a fortunate enough position to gift their child many thousands or tens of thousands would likely do it in an ISA.

ZeroSum

Exodi said:

ZeroSum said:

MX5huggy said:

Yes if they earn more than £100 of interest on money their parents haven given them then that interest is considered to be earned by the parent. 

https://www.gov.uk/savings-for-children

Money from other sources and in Junior ISA is excluded. 

I’ve decided that child saving is an overrated savings area, it’s a nice idea but if you do it, you end up with a complicated situation of the money being theirs just when they might not have the skills to handle it in the way you expect. Or you consider it yours and end up in a pickle trying to spend it for them. Unless you are using all your own ISA allowance every year (£20000) I would focus on that for a Stocks and Shares ISA if saving for 10 years plus. 

How do they prove that though?
I've gone into branch & deposited cash, but all the money is from relatives.
Unless I do a bank transfer or write a cheque then it's impossible to prove I'm the original source of funds

ZeroSum said:

MX5huggy said:

ZeroSum said:

MX5huggy said:

Yes if they earn more than £100 of interest on money their parents haven given them then that interest is considered to be earned by the parent. 

https://www.gov.uk/savings-for-children

Money from other sources and in Junior ISA is excluded. 

I’ve decided that child saving is an overrated savings area, it’s a nice idea but if you do it, you end up with a complicated situation of the money being theirs just when they might not have the skills to handle it in the way you expect. Or you consider it yours and end up in a pickle trying to spend it for them. Unless you are using all your own ISA allowance every year (£20000) I would focus on that for a Stocks and Shares ISA if saving for 10 years plus. 

How do they prove that though?
I've gone into branch & deposited cash, but all the money is from relatives.
Unless I do a bank transfer or write a cheque then it's impossible to prove I'm the original source of funds

Have you ever been subjected to a HMRC investigation? No neither have I. But they don’t have to prove anything you would be required to prove the source of the funds. Remember £100 of interest at 2% needs £5000 of deposits not a bit of birthday money from relatives. 

I'm well aware of the maths, however with our child being my parents only grandchild it's not out of the question that they'll have gifted enough within 5 or 6 years (more so with rates rising)

It's generally accepted that parents are responsible for their children and by extension would be responsible for a childrens savings account, even if they are not the beneficary of it.

I think it's pretty unlikely that a child would amass a sizeable wealth in an account only the parents can access, without the parents knowledge.

But I get what you're saying. What if wealthy Nanny May is feeling particularly generous and decides to deposit £10k for a childs birthday without the parents knowledge - if the parents didn't realise, yes they'd have to personally pay tax on the interest. But I expect this situation is unlikely at best plus we can't reasonably expect to get away with 'I've no idea where the money in my childs account of which I'm the only person that has initital access to the bank details came from'.

I'll know about the money, I just don't see why I could end up with a tax bill because of another family member & nothing to do with my own personal situation. As things stand £4k will generate interest of £100. That's not 'sizable wealth' & will probably have there abouts by early/mid primary school age given that my parents will gift circa £500 a year.

I guess it'll be one of those things that as long as it doesn't get abused, then HMRC won't bother with. And probably why the account in question has a £200 pcm limit to prevent said abuse. So hopefully nothing to worry about