Child Savings

Stickerman72

My wife set up some accounts in our childrens names, utililising money from her savings into these accounts. the accounts enable her to put money in and take money out without issues.

We now want to use this money for a property deposit, if we take the money out there is also approximately £5000 in interest accrued, do we need to tell the HMRC about this and if so what is the best channel to sort it?

Thank you

Keep_pedalling

You will need to pay tax on that income as interest on children’s accounts that have been funded by parents is treated as the parents income not the children’s.

sammyjammy

Paticularly if the money is removed and spent on something else!

jimjames

If the accounts are in your children's names, is it not their money so you can't use it for yourself?

artyboy

https://forums.moneysavingexpert.com/discussion/comment/82015673#Comment_82015673

This has been discussed many times on here now, and even on the ML Show - I'm generally of the view that if it's in their name then it's fully theirs and you shouldn't be touching it.

But the counter argument is that if it is used for something that directly benefits the child - such as buying a more suitable house - then it is justifiable to do so.

I doubt there's much to be gained from rehashing this, in any event… but the tax will certainly need to be paid on the interest.

poseidon1

This is precisely one of the circustance the HMRC £100 parental settlement rules were introduced to address.

Parents using children's accounts to avoid personal income tax on savings they ultimate use for their own benefit rather than for the child.

Sounds as if this £5,000 interest has accrued over a number of years, so OP's wife may well have voluntarily declarations to make for a number of past tax years, where the interest earned exceeded the £100 annual de minimis.

The wife in this case, will need to go back for each tax year these accounts were crediting interest, and consider relative to her own taxable income whether she has 0%, 20% or 40% tax liabilty on interest £100 or more.

Probably best to do this by way of a detailed schedule for the tax years in question, with a covering letter to HMRC pleading ignorance of the parental settlor rules set out in the links below -

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4310

https://www.saga.co.uk/money-news/the-little-known-savings-rule

Hopefully, HMRC will not feel minded to charge penalties for past non disclosure, although interest on the unpaid tax will likely arisely automatically.