£100 interest limit for children

Anx

Are child ISA the only way children can earn interest tax free? My parents have been gifting a small amount of money each month to my children. I’d like to also do this but I know there is a £100 limit before they need to pay tax on the interest.

wmb194

Anx said:

Are child ISA the only way children can earn interest tax free? My parents have been gifting a small amount of money each month to my children. I’d like to also do this but I know there is a £100 limit before they need to pay tax on the interest.

The £100 limit only applies to the interest earned on the money specifically received from parents but to avoid any aggravation you could make your gifts to an Isa instead.

"Tell HMRC if, in the tax year, the child gets more than £100 in interest from money given by a parent."

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

Albermarle

A child can actually earn a rather large amount of interest before paying tax . £18,750 a year !
Because of this HMRC do not want parents taking advantage of this and putting their savings in the child's name. Hence the max £100 interest rule.

By the way if the child is still quite young then most likely you would get a better result investing the money, rather than saving it . A Stocks and Shares JISA is an ideal way to do this.

Ciprico

Before opening a jisa understand the product. From a tax perspective they are similar to an ISA but very different in terms of access and what happens when the child turns 18!

refluxer

The best Junior Cash ISAs pay decent rates (anything up to 4.25%) but one downside is that the majority can't be managed online, so picking a provider with a local branch (or phone option) can make things easier. Some of the smaller building societies actually offer the best rates and these aren't always mentioned on the comparison sites, so it's always worth checking any building societies close to you.

In terms of the child getting access to the money at 18, a Junior ISA is no different from any other children's savings account that you can open on their behalf. The only way to avoid this is to save money in your own name.

artyboy

Give money to grandparent (or any trusted relative), they give it to the child, tax link is broken.

I don't know why parents get so het up about this tax, which is just sooooooo easy to avoid...

ZeroSum

artyboy said:

Give money to grandparent (or any trusted relative), they give it to the child, tax link is broken.

I don't know why parents get so het up about this tax, which is just sooooooo easy to avoid...

How do you prove it? Don't hmrc automatically assume money is from parents? 
My Little one has a decent amount in building society & none of it has come from parents (mainly grand parents) but since its all cash, I don't think hmrc would just accept my word on where its come from. 

It's not quite enough to earn the £100, but won't be far off in next 12-18 months. So probably going to go down ISA route eventually even though I'm not keen on locking it away for next 17 years

artyboy

ZeroSum said:

artyboy said:

Give money to grandparent (or any trusted relative), they give it to the child, tax link is broken.

I don't know why parents get so het up about this tax, which is just sooooooo easy to avoid...

How do you prove it? Don't hmrc automatically assume money is from parents? 
My Little one has a decent amount in building society & none of it has come from parents (mainly grand parents) but since its all cash, I don't think hmrc would just accept my word on where its come from. 

It's not quite enough to earn the £100, but won't be far off in next 12-18 months. So probably going to go down ISA route eventually even though I'm not keen on locking it away for next 17 years

Eh, prove what? It's up to HMRC to be able to prove it HAS come from the parents, and any parent daft enough to give them that audit trail through direct electronic payment could probably get off on the "Harry Redknapp" defence 

ZeroSum

artyboy said:

ZeroSum said:

artyboy said:

Give money to grandparent (or any trusted relative), they give it to the child, tax link is broken.

I don't know why parents get so het up about this tax, which is just sooooooo easy to avoid...

How do you prove it? Don't hmrc automatically assume money is from parents? 
My Little one has a decent amount in building society & none of it has come from parents (mainly grand parents) but since its all cash, I don't think hmrc would just accept my word on where its come from. 

It's not quite enough to earn the £100, but won't be far off in next 12-18 months. So probably going to go down ISA route eventually even though I'm not keen on locking it away for next 17 years

Eh, prove what? It's up to HMRC to be able to prove it HAS come from the parents, and any parent daft enough to give them that audit trail through direct electronic payment could probably get off on the "Harry Redknapp" defence 

I'm not sure the taxman works that way round. The discussion has been had before, and the general concensus was that you had to prove it to the taxman

artyboy

[Deleted User] said:

artyboy said:

Give money to grandparent (or any trusted relative), they give it to the child, tax link is broken.

I don't know why parents get so het up about this tax, which is just sooooooo easy to avoid...

This is tax evasion.  If the parent is not going to bother to put the income on their own tax return, why bother with all the pretence in the first place.

Rubbish. You're perfectly entitled to make gifts to relatives. And they are perfectly entitled to make gifts to theirs...

spider42

artyboy said:

[Deleted User] said:

artyboy said:

Give money to grandparent (or any trusted relative), they give it to the child, tax link is broken.

I don't know why parents get so het up about this tax, which is just sooooooo easy to avoid...

This is tax evasion.  If the parent is not going to bother to put the income on their own tax return, why bother with all the pretence in the first place.

Rubbish. You're perfectly entitled to make gifts to relatives. And they are perfectly entitled to make gifts to theirs...

Indeed, it is perfectly legal to make gifts to relatives and for them to make gifts to theirs. But if the money comes from the parents (either directly or indirectly), then it is a settlement and the resulting income is taxable on the parents. It would be tax evasion for the parents not to include the resulting income to their children on their tax returns.

This type of arrangement is covered by the very first example on HMRC's Helpsheet 270:

Example 1

Sue gives £1,000 to her brother Roger to put into trust for her children. Roger sets up a trust with this money and although he’s the named settlor in the trust deed, Sue is treated as the real settlor because it was her who indirectly provided (or settled) the funds.