5.5% childs savings account clarification

kiloton

I have a son, 6 years old and opened a bank account for him with interest rate of 5.5%. Is there a personal allowance for him £1000, only if money doesn't come from me?

Thanks

amanda1024

I think if money comes from you, his allowance is only £100 - if his account earns more interest than that, then it's taxed as if it were in your own account (to avoid parents using their childrens' accounts to avoid interest). If the money doesn't come from a parent/step-parent, his allowance is much higher - assuming he has no other income, it can be as much as £18,570.

A Junior ISA avoids the tax.

xylophone

You have opened a non JISA account in the name of your minor unmarried child.  The interest rate on the account is 5.5% per annum - that is to say that for every £1000 deposited in the account, he will receive interest of £55 per annum.

Let's say that you gift him a sum of money and deposit it in this account and at the end of a tax year, he has earned interest in excess of £100.

Although the capital and interest belong to him absolutely, the interest (as it is over £100) is taxable on you. 

Let us say that the gift of the sum of money came not from you but from a friend or relation.

Then the interest is taxable on your son, who has his own personal allowance, starter rate for savings and personal savings allowance.

A parent may make gifts into a JISA account - the interest arising in such an account is tax free regardless of whether a parent or friend or

relation provided the capital.

lon_don

Does each parent (assuming 2 parents) enjoy the £100 allowance ?

So assuming 5% interest, dad can gift up to £2k, and mum can gift up to £2k, and no one gets taxed ?

MX5huggy

lon_don said:

Does each parent (assuming 2 parents) enjoy the £100 allowance ?

So assuming 5% interest, dad can gift up to £2k, and mum can gift up to £2k, and no one gets taxed ?

Yes it’s £100 per parent (could be 2 or more with step parents) grand parents friends etc don’t count. 

Yes £2000 at 5% generates £100 per year. But that same £2000 generates £100 the next year or if left to compound £105. It’s not that you can give them £2000 per year. 

lon_don

MX5huggy said:

 Yes £2000 at 5% generates £100 per year. But that same £2000 generates £100 the next year or if left to compound £105. It’s not that you can give them £2000 per year. 

Yes I fully understand the gifts are one-off, not repeated each year.

kiloton

It addition to this. If my mother, his grandmother, gifted my son with money via cheque, which I lodged in my account. Can I transfer that to his account? It may look as if it was from me and I would be charged interest? Does the money have to directly come from the grandparent? 

xylophone

It would be better not to mix money from parents/other relatives in the child's account.

Why not  consider opening a JISA for parental gifts for access when your child is 18 (moving any parental gifts already in the account to JISA), leaving the existing account for gifts from friends and relations?

As for the cheque, grandma can draw it in junior's name so that it can be paid direct into his/her account.

Or if grandma uses on line banking, she could make a faster payment into the account if you gave her the details?

jimjames

kiloton said:

 It may look as if it was from me and I would be charged interest? Does the money have to directly come from the grandparent? 

It might be just poor wording but you aren't charged interest. You would pay tax at your normal rate on any interest above £100 on money you gave the child.

Albermarle

In fact due to the age of your son, you should consider a Stocks and Shares JISA.
Over 12 years it is highly likely to produce a better return than a savings account.

For example

Junior ISA | Invest in a Junior Stocks and Shares ISA | Fidelity