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£100 interest limit on kids savings before it's all taxed as if it were the parents

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  • masonic
    masonic Posts: 27,308 Forumite
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    pip895 said:
    artyboy said:
    Restrictive? You know the child could have been 'given' the money by grandparents, friends, neighbours, Jim from down the pub etc etc... it really doesn't take a massive leap of imagination to ensure there is no paper trail back to the parents and hence no tax issues to deal with  ;)
    Does it make any difference what the paper trail is - surely you get taxed regardless of who gave them the money??
    Interest isn't taxed at source, so if there was any tax owed, the responsible party would need to inform HMRC. Interest does get declared to HMRC, I have no idea whether or not they follow up with parents in practice, but they could and it is at that point that a supporting paper trail is useful to have.
  • artyboy
    artyboy Posts: 1,614 Forumite
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    edited 17 February 2023 at 11:58PM
    pip895 said:
    artyboy said:
    Restrictive? You know the child could have been 'given' the money by grandparents, friends, neighbours, Jim from down the pub etc etc... it really doesn't take a massive leap of imagination to ensure there is no paper trail back to the parents and hence no tax issues to deal with  ;)
    Does it make any difference what the paper trail is - surely you get taxed regardless of who gave them the money??
    Yes of course it does - the rule only applies if the money has come directly from the parents. My own 2 had many many thousands in savings accounts before they were 18 (and one still is). All generous gifts from relatives, some was inheritance, birthday and Christmas money etc etc...

    I'm not getting taxed on any of that interest as a parent... it's my kids money, nothing to do with me beyond where my name has to be on the account as the responsible adult.
  • xylophone
    xylophone Posts: 45,627 Forumite
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    edited 18 February 2023 at 3:47PM
    surely you get taxed regardless of who gave them the money??
    No.

    The "£100 rule" applies to income arising on gifts (except to tax privileged accounts like JISA) from parents to their minor unmarried children.

    This is why it is always wise for gifts from other people to be kept separate from those from parents (except into JISA where it doesn't matter)

    https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2430

    https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4310
  • pip895
    pip895 Posts: 1,178 Forumite
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    xylophone said:
    surely you get taxed regardless of who gave them the money??
    No.

    The "£100 rule" applies to income arising on gifts (except to tax privileged accounts like JISA) from parents to their minor unmarried children.

    This is why it is always wise for gifts from other people to be kept separate from those from parents (except into JISA where it doesn't matter)

    https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2430

    https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4310
    Glad this didn't come in whilst it would have effected us - administrative nightmare separating out money from us from that from others after a few years.  I guess we would have had to have separate accounts but it all seems rather odd.   
  • lotti_bosman
    lotti_bosman Posts: 12 Forumite
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    Apologies for resurrecting an old thread. Regarding the £100 interest limit and the gov.uk website: "Tell HMRC if, in the tax year, the child gets more than £100 in interest from money given by a parent".

    It's a hypothetical situation but I just wanted to understand for clarity. As a basic rate tax payer, putting £3000 in my child's 4% savings account in tax year 2024-25 has yielded £120 interest (i.e. £20 over the savings interest threshold for taxation). The whole £120 will be taxed at 20% and will need to be declared. As a non-tax payer, my wife has done the same in this tax year at the same rate of interest. As I understand, there is likely to be no tax payable for my wife's donation but there will be for the money I donated in the previous year and which will be taxed in this tax year. If my child withdraws, say, £200 from his account, would it be from my £3K donation or my wife's? In other words, in a total savings of £5800, would interest still be 4% on £3000 or is it now 4% on £2800. From whose donation has my son taken his £200? It's all a bit complicated for me and would be even more so if you were to include donations from grandparents and friends in the mix in order to calculate the tax owed specifically on my donated amount. I'm really curious to know how HMRC would calculate this when it's been declared or even if it should be declared if the amount withdrawn by my son takes the interest yielded from my donated amount under the £100 threshold.

    I suppose the obvious answer is to withdraw my £3K, pass it to my wife and get her to donate the money from her bank account to my son so that the whole amount has now been donated by a non-tax payer. It still leaves me intrigued as to how HMRC would treat the scenario above.
  • IanManc
    IanManc Posts: 2,452 Forumite
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    I suppose the obvious answer is to withdraw my £3K, pass it to my wife and get her to donate the money from her bank account to my son so that the whole amount has now been donated by a non-tax payer. It still leaves me intrigued as to how HMRC would treat the scenario above.
    The money belongs to the child now, so you can't "withdraw" it, and your wife can't "donate" it back to the child because the child owns it already. So that's not "the obvious answer".
  • refluxer
    refluxer Posts: 3,187 Forumite
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    IanManc said:
    I suppose the obvious answer is to withdraw my £3K, pass it to my wife and get her to donate the money from her bank account to my son so that the whole amount has now been donated by a non-tax payer. It still leaves me intrigued as to how HMRC would treat the scenario above.
    The money belongs to the child now, so you can't "withdraw" it, and your wife can't "donate" it back to the child because the child owns it already. So that's not "the obvious answer".
    When parents manage certain types of childrens' savings accounts, they (generally, according to the T&Cs) have to do so with the 'best interests of the child' in mind. While the child isn't necessarily benefiting from the proposed transactions, I personally can't see anything wrong with withdrawing money and paying it straight back in because the child isn't losing out - it's essentially just a form of admin, IMO.  

    Whether this action would resolve the (frankly unenforceable) £100-per parent tax rule is another matter, though ! 
  • ZeroSum
    ZeroSum Posts: 1,201 Forumite
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    I queried this with Newcastle BS. They told me that there was some special way the account was set up & administered that parents wouldn't be subject to tax.
  • masonic
    masonic Posts: 27,308 Forumite
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    edited 23 April at 6:18AM
    IanManc said:
    refluxer said:
    IanManc said:
    I suppose the obvious answer is to withdraw my £3K, pass it to my wife and get her to donate the money from her bank account to my son so that the whole amount has now been donated by a non-tax payer. It still leaves me intrigued as to how HMRC would treat the scenario above.
    The money belongs to the child now, so you can't "withdraw" it, and your wife can't "donate" it back to the child because the child owns it already. So that's not "the obvious answer".
    When parents manage certain types of childrens' savings accounts, they (generally, according to the T&Cs) have to do so with the 'best interests of the child' in mind. While the child isn't necessarily benefiting from the proposed transactions, I personally can't see anything wrong with withdrawing money and paying it straight back in because the child isn't losing out - it's essentially just a form of admin, IMO.  

    Whether this action would resolve the (frankly unenforceable) £100-per parent tax rule is another matter, though ! 
    I have to agree with the "frankly unenforceable" bit. It would be an utter minefield to enforce and needlessly costly in most cases I'd expect. I'm genuinely intrigued to know how many people who should declare it to HMRC, actually do. And of those who don't and should, how many actually get chased up by HMRC. I'd suspect not that many.
    The limit is an anachronism really. I'm over 60 and the limit was £100 when I was a child. £100 is a paltry sum for parents to give to a child during the entirety of a childhood nowadays.
    If it had kept up with inflation since I was born the limit would now be £1800.
    I'm sure you know this, but for the benefit of others reading, it is interest of £100 on the sum given, £100 is not the limit a parent can gift before tax is payable on the interest. So the sum given can be substantially more than £100.
    I have to agree with the "frankly unenforceable" bit. It would be an utter minefield to enforce and needlessly costly in most cases I'd expect. I'm genuinely intrigued to know how many people who should declare it to HMRC, actually do. And of those who don't and should, how many actually get chased up by HMRC. I'd suspect not that many.
    Obviously forum rules prohibit providing reassurance to those considering tax evasion, but suffice it to say that this rule was introduced to combat parents using child savings accounts to save their own money. Perhaps it is a bit easier to pick up on when this occurs, and of course if HMRC took an interest in a parent for a different reason, it is much more likely payments into such an account would be explored. If genuinely giving money to the child, then there is nothing to stop a parent giving money to another relative or friend to gift to the child without these strings. So there is no reason to risk being chased up by HMRC, however unlikely you consider it, if your intent is to genuinely give money to the child.
  • IanManc
    IanManc Posts: 2,452 Forumite
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    I'm sure you know this, but for the benefit of others reading, it is interest of £100 on the sum given, £100 is not the limit a parent can gift before tax is payable on the interest. So the sum given can be substantially more than £100.

     Sorry. Yes, I knew what I meant ....... I just didn't write it! 🥴

    Thank you for pointing it out so gently. 
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