Child Savings and Tax Question

1jim

Hi, I am not sure if this should be on here or the cutting tax board but please move if required,

My wife and I save for our children, currently have the Halifax regular saving account (have used for last 2years) Each year had around £57 interest added and the total has been moved across to the Halifax save for it account again with reasonable interest. Now as I understand it if a childs account earns more than £100 interest a year then it will be taxed as the parents income....

My intentions is to continue paying in £100 a month in to regular saver for each child (we have 2), plus little bits here and there (we save the £2 coins etc) and then put it into a childs account, this seems that we would be taxed at some point on the childrens savings. In practice does the taxman look to check amounts paid in, could I say granparents paid this in every month?? or should I pay the amounts they save into my/my wifes ISA and just have it in my head that it is their money??
I dont really want to put it into a childtrustfund as I dont want the children to have automatic access to this level of savings at 16/18... the aim was to let them use it for univeristy/house deposit that sort of thing

any thoughts on this?

thanks
Jim

cloud_dog

I don't work in the industry so I'm not sure if banks / BS are required to notify the IR if a 'child' account accrues more than £100 interest in a year but I would think (as always) the onus is on you to be able to prove the money was deposited by a grandparent or other.

For example we kept a photocopy of the cheque and paying in slip when my mother wanted to make a gift for our daughter.

Wrt putting money in to one of your ISA's this is a perfectly reasonable idea and one which allows you some degree of control (should you feel it necessary).

The downside (I think - although need to check) is that there might be taxable gift limits later when you want to give your child the money. Having said that how the IR would ever know is beyond me - although never cheat the taxman

cloud_dog

Steve_xx

Here you are, you can read all about it from the horses mouth:

http://www.hmrc.gov.uk/taxback/childsavings.htm

Your grandparent suggestion will fix the problem.

Liz_the_Whizz

The other point is that the £100 rule applies separately to each parent, so you can work on the basis of a £200 ceiling jointly.

Steve_xx

Liz_the_Whizz wrote: »

The other point is that the £100 rule applies separately to each parent, so you can work on the basis of a £200 ceiling jointly.

Why have a ceiling when you've got grandparents?

1jim

cloud_dog wrote: »

The downside (I think - although need to check) is that there might be taxable gift limits later when you want to give your child the money. Having said that how the IR would ever know is beyond me - although never cheat the taxman

cloud_dog

Thanks, Hadnt thought about the gift limits......this all gets very complicated, all I want to do is save £100 a month for each of my 2 children so they can have some money for the future..its almost like the government/taxman dont want you to save for the future

1jim

so it seems that the easiest (although naughtiest) thing to do is channel the money somehow through the grandparents back to the childrens accounts.... so if I happened to.. over the course of a month withdraw cash from my account and spend it on cash purchases (you know carparking/shopping and the like) and my mother in law happened to put £100 into each of my 2 childrens accounts directly from her bank account.... then that would be ok and the taxman would have no interest in the interest accumulated he would just think that my 2 have a very generous granmother?
Jim

Steve_xx

1jim wrote: »

so it seems that the easiest (although naughtiest) thing to do is channel the money somehow through the grandparents back to the childrens accounts.... so if I happened to.. over the course of a month withdraw cash from my account and spend it on cash purchases (you know carparking/shopping and the like) and my mother in law happened to put £100 into each of my 2 childrens accounts directly from her bank account.... then that would be ok and the taxman would have no interest in the interest accumulated he would just think that my 2 have a very generous granmother?
Jim

You may say that Jim. I couldn't possibly comment

1jim

Steve_xx wrote: »

You may say that Jim. I couldn't possibly comment

Mikeyorks

1jim wrote: »

....its almost like the government/taxman dont want you to save for the future

No ... it's simply to stop parents shielding their own funds, in the child's name. A child has a £5345 (08-09) personal allowance ..... so parent's could salt away a lot of their savings, tax free, (and often at better than adult rates) if it wasn't for the limitation ... operating strictly on funding from parents.

You're unlikely to be challenged on interest running up to a few £hundred pa in the childs name. I never was. But bear in mind the Banks etc notify HMRC of all accounts paying interest .. and that certainly includes those with an R85 filed.

jennifernil

For the "grandmother" plan to work gran would need to have enough income to fund the gifts, or it would be suspicious. There are also limits on gifts gran can give, but out of income is Ok as I understand it.

If you and your wife do not use all your ISA allowances this could be the best way. Gifting money will be OK as long as you survive 7 years. But to keep control you could use it to give them monthly allowances while at Uni.