Account/Children’s saver advice.

SF1869

Hello,

I opened a childrens saver account with my bank when my son was young which he has used to save all his pocket money/birthday money etc over the years. 

He turned 16 earlier this year and the terms of the account were that the bank was supposed to write to me and ask what I would like to do with the account however they didn’t and instead converted it to a standard saving account in my name (with a very low rate of interest). When queried the bank were no help whatsoever and actually said, “we get this complaint all the time”.

I am now trying to transfer my sons money into a higher rate saving account, in his name, but am concerned it looks like a parental gift from me and therefore I will be taxed on the approx £600 interest he stands to earn. Is there’s anything I can do with this to get his money to him without penalty as the bank, other than confirming the account was up until recently a Childrens saver, are not willing to help at all.

Thanks in advance.

Keep_pedalling

He can open his own JISA with £9000 of it, and put the rest in that JISA in April so that it is not subject to IT. 

SF1869

Thank you very much for your reply. So if he opens his own JISA I can just transfer £9000 directly to it from the savings account, now in my name, without it being considered a parental gift?  Also does that still leave the 3k p/a parental gift allowance intact? Thanks again for your help. 

xylophone

You say that this was a children's saver account.

When the account was opened,  were the terms that the child was the beneficial owner of the funds while you were the bare trustee?

With regard to the funds, who provided the capital?

Presumably interest has been earned in every year since the account was opened. If you or the child's other parent were the source of the capital, are you aware of the "£100 rule" in respect of interest earned on money given to your minor, unmarried child?

https://webarchive.nationalarchives.gov.uk/ukgwa/+/http://www.hmrc.gov.uk/families/babsi.htm

Children are entitled to income tax allowances in the same way as adults. And, depending on their income, they may or may not be taxpayers. 

Be careful. There are special rules if the savings have been given by a parent. If gifts from a parent produce more than £100 gross income a year, the whole of the income from the gifts is normally taxed as that parent's income. A child cannot get back any tax on that income. 

The £100 rule applies separately to each parent

The £100 rule applies to income arising each year. It does not matter whether the money in the account is comprised of part capital and part added interest. The £100 rule applies as long as income is over £100 in any one year for any one child from one parent.

For example

If a parent gives a child £2,000 which earns £98 interest the interest belongs to the child for tax purposes and the account can be registered for gross interest. But if the £98 is added to the account, leading to £101 interest being earned in year 2, the interest has now exceeded the £100 limit. This means it now belongs to the parent for tax purposes 

SF1869

Hi there, thanks for your reply. Unfortunately I don’t still have the terms to hand however it was a BOS children saver account which then changed to a BOS young saver some years later, but my sons name was always listed next to mine on the statements. The capital was a mixture of in-branch cash deposits (Xmas/birthday money from grandparents) and transfers from mine or my wife’s accounts for pocket money. The account was opened for convenience due to the branch being local so the interest rate was never very good and on only two occasions in the statements that I have access to was the yearly interest over £200.  Thank you. 

xylophone

https://www.bankofscotland.co.uk/savings/accounts/childrens-saver.html

Who it's for

You can open a Children’s Saver if you:

• are an adult who wants to save in trust for a child aged 15 or under

• This account will be held in trust for the child until they turn 16. Before their 16th birthday we'll ask you if you want the money transferring to another account, or if you want it to change to an Access Saver.
• We’ll need to contact the child between the age of 13 and 16 to tell them we hold their personal information. We’ll contact you first.

It appears that the money in the account (both capital and interest) belongs to the child - it seems to me that it should not have been transferred to an account in your sole name.

With regard to taxation, see above regarding parental gifts. The rules are different for interest arising on gifts from anybody else. 

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

SF1869

Thank you very much for all your time and help, especially at this time of year - it’s very much appreciated.  I was also led to believe that this was the case with the account and since there was no communication digitally or on paper prior to them making this change I’ve had a complaint open with the BOS since last week but as the advisor and branch manager were extremely dismissive of my concerns I doubt there’ll be any recourse after their 8 week grace period.

If the JISA is a guaranteed way to transfer most of my son’s money into his own name, without any penalty or charges then I’ll get him to open one.

Thank you very much again and Happy new year. 

xylophone

Now that your son is 16, he may open a JISA for himself.

The "£100 rule" does not apply to parental gifts into JISA.

https://moneyfactscompare.co.uk/isa/junior-isas/

SF1869

Fantastic - many thanks! Really appreciate all your help.