Self Assessment and Interest on Savings

PoGee

It's not clear anywhere within hmrc's website what joint account holders in my situation should do. I'll just accept it as my interest as that's how the bank see it. Thanks for replies.

jem16

PoGee said:

It's not clear anywhere within hmrc's website what joint account holders in my situation should do. I'll just accept it as my interest as that's how the bank see it. Thanks for replies.

Did you not read the link I gave you? If interest is over £100 it's considered yours for tax purposes.

sheramber

You said you opened accounts for your kids.

That did not state they were joint accounts. 

If they are  accounts in the name of  PoGee and  child A

and PoGee and child B then they are joint accounts and each person reports half the total interest. 

If they are in  the  name of PoGee  for child A and for child B .  as normally accounts opened by parent for young child  are, then these are not joint accounts. 

Also, as advised above , if the money deposited if from a parent then ALL interest over £100 is chargeable to tax on the parent. 

DRS1

Am I wrong to think the £100 thing only applies where the child is an unmarried minor?  These children are adults.

mybestattempt

DRS1 said:

Am I wrong to think the £100 thing only applies where the child is an unmarried minor?  These children are adults.

I don't think you are wrong.

The legislation (S629 ITTAOI Act 2005) only allows the £100 exemption for a "relevant child" which in turn defines a "relevant child" as minor child who is unmarried or not in a civil partnership.

As the children are adults the OP should include the whole amount of untaxed interest for both the child accounts in his self-assessment return.

He/she could make an online amendment to the 2024/25 return to correct it, which would be much quicker and easier than telephoning HMRC again.

DRS1

@mybestattempt Sorry I am being thick but I thought s629(1) was the charging provision and that says

"Income which arises under a settlement is treated for income tax purposes as the income of the settlor and of the settlor alone for a tax year if, in that year and during the life of the settlor, it—

(a)is paid to, or for the benefit of, [a relevant] child of the settlor, or

(b)would otherwise be treated (apart from this section) as income of [a relevant] child of the settlor."

s629(3) gives the £100 exemption by saying

"Subsection (1) does not apply in relation to a child's relevant settlement income in any tax year if, in that year, the total amount of that income does not exceed £100."

I agree that if the income exceeds £100 then the whole of the income is the parent's not just the excess.

But if the person receiving the income is an adult then surely they don't meet the definition of "relevant child" and so the charge does not arise in the first place?

As you say subsection (7) (d) defines relevant child as a minor child who is unmarried or not in a civil partnership

mybestattempt

DRS1 said:

@mybestattempt Sorry I am being thick but I thought s629(1) was the charging provision and that says

"Income which arises under a settlement is treated for income tax purposes as the income of the settlor and of the settlor alone for a tax year if, in that year and during the life of the settlor, it—

(a)is paid to, or for the benefit of, [a relevant] child of the settlor, or

(b)would otherwise be treated (apart from this section) as income of [a relevant] child of the settlor."

s629(3) gives the £100 exemption by saying

"Subsection (1) does not apply in relation to a child's relevant settlement income in any tax year if, in that year, the total amount of that income does not exceed £100."

I agree that if the income exceeds £100 then the whole of the income is the parent's not just the excess.

But if the person receiving the income is an adult then surely they don't meet the definition of "relevant child" and so the charge does not arise in the first place?

As you say subsection (7) (d) defines relevant child as a minor child who is unmarried or not in a civil partnership

You're not being thick and I take your point here, which is, that the income (interest in this case) of the settlement (the savings account funded by the OP) is no longer that of the OP (the settlor) once when the child ceased to be an unmarried minor.

My thinking was that the OP (the settlor) continued to benefit from the savings accounts.

I don't have time to research more fully today, but perhaps @poseidon1 will be able to provide more informed comment.

poseidon1

The parent /settlor settlement rules have been in place many decades  ( since the 1990s) and originally introduced to prevent higher rate tax paying parents avoiding tax by sheltering some of their wealth  in deposit accounts or income bearing investments held in their minor children's names. The following brief STEP article explains further- 

https://journal.step.org/step-journal-april-2011/parental-settlements

The problem with this measure is that all parents are caught even if they are only basic rate tax payers. Higher rate tax payers in the past and currently were more likely to be advised by tax accountants ( such as clients of the various firms I worked) so could take preventive measures to avoid the impact of the rules applying, or at least ensure compliance via self assessment.

Non advised basic rate tax payers, are inevitably caught by reason of  sheer ignorance of the rules, especially in the common scenario of setting up children's saving accounts.

@DRS1 is correct in that technically speaking this regime falls away once the child attains age 18 when all interest/ investment income becomes taxable on the child only. 

However if the parent has not passed sole control of such accounts into the adult child's name (which legally should have occured), how does HMRC know that a child's account held jointly with the parent is  no longer subject to the parent/ settlor rules?   As in the current example the bank  continues to automatically report the joint account interest to HMRC, and if over £100 automatically assess on the parent. The position worsens where there is more than one adult child with multiple accounts. 

Yes the parent can contact HMRC to amend records to avoid the parent being assessed by confirming age of child concerned (although there is the time apportionment issue for monthly interest accounts in the year the child attains 18), but the ideal solution is for the account to be passed to the sole control of child, removing the parent's joint designation, which certainly the OP should be doing to avoid future issues.

Frankly the mischief the original legislation was designed to address ( higher rate tax parents avoiding tax) has in my opinion spiralled out of control to catch parents of far more modest means, with a de minimis of £100 being ridiculously small in this day age.

The following article in the IFA trade magazine sets out measures that can be taken ( eg JISAs) and posits a higher de minimis of say £500 annually to remove relatively modest cash balances from the charge.

However in my view the complexity of the rules is such that, it would be far more just if it was applied only to higher rate tax payers, the original target segment of the population upon whom the regime was designed to attack.

https://ifamagazine.com/parents-unaware-theyll-be-hit-with-tax-for-their-childrens-savings/