Kids savings accounts

patchyX2

Hi,

I've got a few thousand £ for each of my children that I'd like to put in a bank account that can earn them some interest. 

I've ruled out Junior cash ISA's as I'd like the money to be accessible if they want to buy something.

I was trying to read up on the tax implications and was a bit confused by the following that I found on the MSE site:

"Junior ISA savings are tax free and remain tax free year after year.

Yet money given to a child by each parent or step-parent (not grandparents, aunts, uncles etc) which generates more than £100/year in interest in normal (non-junior ISA) savings will be paid at the parent's tax rate.

Once the child earns more than £100 in interest, the whole lot is taxed at the parent's tax rate (though if the parent is within their personal savings allowance and the child's savings don't take them over, then it'd still be tax free)."

So let's say that they have £2000 in their accounts and it's earning 5% interest. That's £100 a year they'd earn in interest which is tax free (just). Over the next couple of years, I (their parent) transfer another £2000 into their account (e.g birthday/xmas presents they got from relatives). This means they'd be earning £200 in interest, which is over their allowance, meaning they get taxed on that whole £200 at my tax rate (let's assume I've exceeded the personal savings allowance). Is that right?

If so, what options are there for avoiding this tax? 

- Ensure that the parent that pays the money in doesn't exceed their personal savings allowance.

- Someone other than the parent has to pay the money in (either the child directly via a branch, or anyone else via a bank transfer directly to their account).

Have I understood this correctly?

xylophone

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4310#:~:text=Where the total of the,not apply in that year.

If a parent makes a gift to his unmarried minor child and the money is deposited in an interest bearing account in the name of that child, the interest and capital always belong to the child.

However, if that interest amounts to over £100 in the tax year, while  it belongs to the child, it is taxed as though it belonged to the parent.


Tom and Mary Jones have an infant daughter Susan.


Let's say that Tom  Jones  gifts £3000 to  Susan. Susan's "child save account" pays 5% per annum,  The interest for the year amounts to £150 - this is wholly taxable on Tom.

Let's say that Tom Jones gives Susan £1500 and his wife Mary gives Susan £1500.  The interest totals £150 but because £75 accrued on Mum's gift and £75 on Dad's, the income is taxable on Susan (who has a full set of Personal Allowance and savings allowance of her ownand no other income than this interest), so no tax payable.

Let's say that no money is withdrawn from the account and the parents continue with the same pattern of gifts so that in a certain year,  interest accruing  to Susan ( still a minor and unmarried) interest amounts to over £200  - half the total interest is then taxable on Tom and half on Mary.

It should also be noted that the "£100 rule" applies per parent per child.

Gifts from persons other than parents are NOT subject to the £100 rule.