16yr old tax allowances on interest earned

DonkeyKong77

Hi
Have seen that Leeds BS have a regular savings account at 7%, am i right in thinking that if my sister opens one - shes 16 and still in education - she could get the 7% rate?

I think i read some time ago somewhere that non taxpayers could only earn £100 in interest before it starts being taxed, is that correct?

You can only put £100 per month in for a term of 12 months, so not much commitment and seems ok - any views?

Also, thought about short term bonds in her name, Cheshire BS have a 6month one at 4.45% which i assume would not be taxed (in education etc) but not sure if this is so good as an alternative would be to put the mooney in a current account with higher rate if possible.

Hope this makes sense

thanks

Kazza242

Hi,

How much an individual can earn before tax is applied depends upon what is called a 'personal allowance'. We all have a personal allowance assigned to us every tax year. It differs depending upon our age.

For this tax year (2005-6) a person under the age of 65 can earn up to £4,895 before they will have to pay tax. I.e. this is how much your sister is allowed to earn (from wages or interest accured) before she will have to pay tax.

Here is the HM Revenue and Customs personal allowance webpage: http://www.hmrc.gov.uk/rates/it.htm.

It's important to know that banks and building societies automatically deduct 20% tax from all savings accounts. In order for your sister to receive her interest gross (i.e. without the 20% tax deduction) she must fill in a form called an R85. It is available to download from the HMRC page: http://www.hmrc.gov.uk/tdsi/R85(2005)v2.pdf

A form must be completed for every savings institution she is a customer of. Therefore, if she is planning to open accounts with Leeds BS and Cheshire BS, she must complete two R85 forms listing all the account numbers she holds with that bank/BS.

charlieboycat

Like anyone else, a 16 yr old can earn £4,895 per tax year (ending 5th April) tax free. The £100 thing relates to interest earned by a child on money given by a parent - exceed the £100 and the parent gets taxed!

DonkeyKong77

Thats great thanks very much - now if only i could earn 4895 in interest!

erb

charlieboycat wrote:

Like anyone else, a 16 yr old can earn £4,895 per tax year (ending 5th April) tax free. The £100 thing relates to interest earned by a child on money given by a parent - exceed the £100 and the parent gets taxed!

Just as an aside to this at what age does a child stop being a child for the £100 interest limit. Is it 16 :j or 18 :beer: or some other age?

Robert_Sterling_3

Good question ERB.

They become an adult at 18.
I guess they stop being a child the day before their 18th birthday.

boltonangel

correct me if i am wrong (i could be!!) but i was always under the impression that if the 16 yr old WASN'T in full time employment she would then be a tax payer.

HGLTsuperstar

boltonangel wrote:

correct me if i am wrong (i could be!!) but i was always under the impression that if the 16 yr old WASN'T in full time employment she would then be a tax payer.

OK I'll correct you, you're wrong. Firstly I think you meant to say if she wasn't in full time EDUCATION, but you're still wrong. If you're not earning over your personal allowance, you dont pay tax, pure and simple. Well I mean you shouldn't pay tax but if you dont fill out the R85 you will because of course the tax office is out to make as much as poss so tell them or they "err on the side of caution"