Child savings accounts and £100 interest limit

levers

Hi,
My wife and I are thinking of opening a savings account for our 1 year old daughter. I have read that we can earn up to £100 interest each per year without it becoming liable to tax. So we have a total interest max of £200 between us. At today rates of around 5.7% that means we could deposit around £3,500 between us, with paying tax on the interest.

My question is, if we want to receive the interest tax free, by completing an R85, should we each open an account separately for our daughter, one with me in trust, and one with my wife in trust, so that we are each below the £100 interest limit for the R85 or can we open an account with us both in trust and still use the R85 to get the income tax free if it is going to be below £200 between us? If so, if we just paid in £3,500 from our joint current account, how does anyone know that half is meant to be from me and half from my wife? Is that just assumed?

Furthermore, if we did pay in £3,500, I understand that takes us over the £3,000 cash gift limit for inheritance tax purposes, so would we be better advised paying part in this tax year and part the next?

Thanks

MrMicawber_2

In theory you should be fine opening one account but getting both of you added to the account as trustees. You would need to be able to prove that the money really came from each of you.

To be really sure you could open two accounts making sure than an R85 is registered for both.

To my knowledge each of you can gift £3,000 per year with no potential IHT charge. Someone will no doubt correct me if I am wrong.

Mikeyorks

I'm assuming you've read this ? :-

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

But I wouldn't get too hung up about the £100 being any sort of alarm bell limit. It's there essentially to prevent parents shielding chunks of their own funds under the £5225 allowance children otherwise have. But I've never known HMRC out hunting for genuine children's funds, where parents are regular contributors but at relatively low values. After all it's difficult enough raising the little .... angels ..... without having to record every penny you put in their Bank account(s)?

All deposit takers advise HMRC of interest paid on accounts .... and HMRC will take particular note of those with an R85 filed. But I think their workload is unlikely to permit too much effort going into evaluating children's accounts holding a few thousand pounds? Their risk scoring will point at much larger targets.

If you don't both use cash ISAs .... I would personally devote one of them to daughter's funds? The interest is in empathy with most children's accounts / no messing with R85s and keeps you within HMRC guidelines .. without any devout record keeping. Furthermore it's in your name .... so if she suddenly decides to blow all 'your' savings on tattoos, or worse, at the age of 16 .... she can't.