Tax liability on child account

Hi all,

I hope somebody can help with a tax query.

This tax year, I am very close to reaching the £1000 threshold for tax-free savings interest. My ISA allowances are all maxed out. I'm a standard rate PAYE employed taxpayer.

One of my numerous bank accounts earning taxable interest is a NatWest First Saver - a children's bank account which I'm operating in trust for a 7 year old child. The money is hers (from an inheritance), not mine, but I operate the account on her behalf and both our names are on the account.

Who is liable for the tax on the interest? If it's me, it will push me over the £1000 limit for this tax year. If it's the child, we're in the clear as she currently earns no money and well under £1000 of interest in her own right.

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  • wmb194
    wmb194 Posts: 3,110
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    edited 2 January at 5:56PM
    DaveF327 said:
    Hi all,

    I hope somebody can help with a tax query.

    This tax year, I am very close to reaching the £1000 threshold for tax-free savings interest. My ISA allowances are all maxed out. I'm a standard rate PAYE employed taxpayer.

    One of my numerous bank accounts earning taxable interest is a NatWest First Saver - a children's bank account which I'm operating in trust for a 7 year old child. The money is hers (from an inheritance), not mine, but I operate the account on her behalf and both our names are on the account.

    Who is liable for the tax on the interest? If it's me, it will push me over the £1000 limit for this tax year. If it's the child, we're in the clear as she currently earns no money and well under £1000 of interest in her own right.
    If you're the trustee and this is an account where the child is the beneficiary, if the deposit came from someone who isn't a parent then the liability is the child's.

    The issue for a parent is when the money came from them and the interest earned is over £100.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,754
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    DaveF327 said:
    Hi all,

    I hope somebody can help with a tax query.

    This tax year, I am very close to reaching the £1000 threshold for tax-free savings interest. My ISA allowances are all maxed out. I'm a standard rate PAYE employed taxpayer.

    One of my numerous bank accounts earning taxable interest is a NatWest First Saver - a children's bank account which I'm operating in trust for a 7 year old child. The money is hers (from an inheritance), not mine, but I operate the account on her behalf and both our names are on the account.

    Who is liable for the tax on the interest? If it's me, it will push me over the £1000 limit for this tax year. If it's the child, we're in the clear as she currently earns no money and well under £1000 of interest in her own right.
    Not sure you have understood how tax on interest works.

    The only way someone can use the savings nil rate band (aka Personal Savings Allowance) is if they have used their Personal Allowance and any available savings starter rate band.

    So your 7 year old would have to have taxable income of at least £17,570 before they could use the £1,000 savings nil rate band.
  • DaveF327
    DaveF327 Posts: 1,160
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    wmb194 said:
    DaveF327 said:
    Hi all,

    I hope somebody can help with a tax query.

    This tax year, I am very close to reaching the £1000 threshold for tax-free savings interest. My ISA allowances are all maxed out. I'm a standard rate PAYE employed taxpayer.

    One of my numerous bank accounts earning taxable interest is a NatWest First Saver - a children's bank account which I'm operating in trust for a 7 year old child. The money is hers (from an inheritance), not mine, but I operate the account on her behalf and both our names are on the account.

    Who is liable for the tax on the interest? If it's me, it will push me over the £1000 limit for this tax year. If it's the child, we're in the clear as she currently earns no money and well under £1000 of interest in her own right.
    If you're the trustee and this is an account where the child is the beneficiary, if the deposit came from someone who isn't a parent then the liability is the child's.

    The issue for a parent is when the money came from them and the interest earned is over £100.

    Thanks for the info.

    The deposit came from a deceased great aunt, not any parent.

    Now the question is: How would HMRC know this? At some point soon, they are going to notice that the interest over ALL my accounts exceeds £1000 and will issue a tax bill* soon. Will they automatically lump the child account interest into said bill? Or will they extend me the courtesy of asking me for details first? Or will I have to start submitting tax returns?

    *(Yes, I know it won't exactly be a paper bill; they may just amend my tax code. I'm just using a figure of speech for simplicity)
  • masonic
    masonic Posts: 22,852
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    edited 2 January at 8:36PM
    DaveF327 said:
    Thanks for the info.

    The deposit came from a deceased great aunt, not any parent.

    Now the question is: How would HMRC know this? At some point soon, they are going to notice that the interest over ALL my accounts exceeds £1000 and will issue a tax bill* soon. Will they automatically lump the child account interest into said bill? Or will they extend me the courtesy of asking me for details first? Or will I have to start submitting tax returns?

    *(Yes, I know it won't exactly be a paper bill; they may just amend my tax code. I'm just using a figure of speech for simplicity)
    The answer is they won't know. In the unlikely event they get interested they will ask for details of where the money came from, you will be able to satisfy their curiosity as presumably you have documents supporting the source of funds. It should not be included in the annual returns sent by banks in relation to your interest. You can always phone HMRC to get a breakdown of your interest as reported by the banks and check all is in order. Some do this every year.
  • DaveF327
    DaveF327 Posts: 1,160
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    masonic said:
    DaveF327 said:
    Thanks for the info.

    The deposit came from a deceased great aunt, not any parent.

    Now the question is: How would HMRC know this? At some point soon, they are going to notice that the interest over ALL my accounts exceeds £1000 and will issue a tax bill* soon. Will they automatically lump the child account interest into said bill? Or will they extend me the courtesy of asking me for details first? Or will I have to start submitting tax returns?

    *(Yes, I know it won't exactly be a paper bill; they may just amend my tax code. I'm just using a figure of speech for simplicity)
    The answer is they won't know. In the unlikely event they get interested they will ask for details of where the money came from, you will be able to satisfy their curiosity as presumably you have documents supporting the source of funds. It should not be included in the annual returns sent by banks in relation to your interest. You can always phone HMRC to get a breakdown of your interest as reported by the banks and check all is in order. Some do this every year.

    That's great. Thank you :)

    So will they be in touch at some point regarding my tax liability? Or do I have to contact them to declare my over-threshold interest and ask them for the breakdown you mentioned while I'm at it?
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