Argh. need help with calculations re tax childs RS

Crabman

Hi guys, I'll move this over to the Cutting Tax board

Hi, Martin’s asked me to post this in these circumstances: I’ve asked Board Guides to move threads if they’ll receive a better response elsewhere(please see this rule) so this post/thread has been moved to another board, where it should get more replies. If you have any questions about this policy please email [EMAIL="abuse@moneysavingexpert.com"]!!!!!![/EMAIL].

Crabman :beer:

Mikeyorks

LMac wrote: »

Thanks to everyone has replied. Getting to the point I wish someone would work it out for me, but at same time I really want to understand it! .............etc

I'm struggling a bit to work out ... what it is you want working out?;) As I think most of it (eg "If I keep it in the Save4It (where it will default to after 1 year) Ill need to pay tax on it next year...") .... you've actually got covered?


I think this is where you came in (the para 'Maximise your child's tax free allowance'?):-

http://www.moneysavingexpert.com/savings/child-savings-tax-free ?????

Bit unclear why you think 2 sentences are contradictory. 'Children can earn up to £100 py' .. is freestanding. The second sentence qualifies it - and is talking about accumulative savings accounts - not such as the RS savings account, which empties every year and does not compound the capital.

So - if you put the £1200 max into the Halifax 10% account, you will acquire around £65 gross (if you file an R85 .. it's not automatic that it's free of tax) interest - which is fine. But if, the following year, you then leave that £1200 in the child's Sav4it account and put £100pm of new money into the RS account .... the combined effect will breach the £100 allowed for the child per annum! So you will bring yourself into the taxable category. It is that capital 'compounding' effect .. the second sentence you quoted in your OP was getting at.

If you simply re-cycle £1200pa through the RS you will be OK .. as you will stay below £100 interest each year for the child. But do note the limit applies to money, generating interest, from the parents. It does not apply to interest generated from money provided by other relatives / friends .... where the personal allowance of £5225 (this year) is the governing factor.

This from the HMRC website :

Children under 18
Children get tax-free income too. But if money given by a parent produces interest of more than £100 a year, the interest will be treated as the income of the parent that gave them the money. This rule does not apply to money given by others, including grandparents.

If you take the money back from your daughter to start the drip feeding again .. HMRC won't question it. After all this is the basic rationale for the rather measly £100 limit? It's essentially to stop parents shielding their own funds in a tax free haven in the child's name. So, moving funds under that de-minimis isn't going to give them problems. And your only liability to tax from any money thus 'recovered' from your daughter, is on any interest it generates whilst in your account.

LMac

Thanks everyone :money: Ive got it sussed now - will withdraw money from Save4It when it goes in in May.

Really really appreciate all the time and effort everyone has put in. Esp to mikeyorks for clarifying what Martin said in the article re compounding! Makes waaay more sense now. (and I feel a little stupid for not realising before, but hey, I know now) Off to click lots of thanks buttons