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Children interest , how does it work?

If we have two children and tax free interest limit works at 100 per child per parent. In this case, am I right in saying we get £400 tax free interest?
Bank accounts
Santander : 17 year relationship, 0 problems to date.

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  • xylophone
    xylophone Posts: 44,138
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    £100 per parent per child.

    If a parent make a cash gift to his/her minor unmarried child and the interest is over £100, then the whole of the interest is taxable on the donor parent and counts towards his/her PSA.


    From when interest was taxed at source and pre PSA

    https://webarchive.nationalarchives.gov.uk/20121003064215/http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10013916

    https://webarchive.nationalarchives.gov.uk/20121003043424/http://www.hmrc.gov.uk/tdsi/children.htm
  • Thanks, so for my understanding. With our two children we can get £400 right?
    Bank accounts
    Santander : 17 year relationship, 0 problems to date.
  • MDMD
    MDMD Posts: 1,419
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    DarkShadow wrote: »
    Thanks, so for my understanding. With our two children we can get £400 right?
    No, the children get the interest. The rule is that if a parent gifts money to a child and it generates more than £100 interest then the interest is taxed as if it were the parent’s income. The capital remains the property of the child.

    https://www.gov.uk/savings-for-children
  • xylophone
    xylophone Posts: 44,138
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    The interest belongs to the child as it arose on capital gifted to him.

    It is simply that where cash is gifted by a parent to his minor,unmarried child, if that interest is more than £100, the whole is taxed as the parent's income.

    Thus, John and Mary gift cash to their child. John's gift makes interest of £100. Mary gifts cash to the same child and her gift makes interest of £100. There is no tax to pay.

    Interest rates go up - each gift now makes interest of £110.

    The whole of the interest from John's gift is taxable on John.

    The whole of the interest from Mary's gift is taxable on Mary.

    When added to interest on their own deposits, this could make a difference to the tax position of each parent.

    https://www.thepfs.org/learning-index/articles/investing-for-children-part-2/57447

    The tax rules briefly described in part one of this two-part article mean that there are opportunities to take advantage of a child’s personal allowances and capital gains tax (CGT) annual exemption when investing for children. However, when parents make gifts for the benefit of their own minor unmarried children, not in a civil partnership, greater care is needed in finding a tax-effective solution given the anti-avoidance rules that exist (where income generated from parental gifts to a minor unmarried child not in a civil partnership, on all gifts from the same parent, exceeds £100 gross in a tax year it will be assessed to income tax on the donor parent– the so-called “£100 rule”).

  • Alexland
    Alexland Posts: 9,653
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    This thread has made me realise that our family aren't making enough use of our young children's legacy Nationwide Future Saver accounts which are still paying 3.5% (3.0% for new accounts if a main account customer). We are currently only using them as fun passbook accounts for small amounts.

    If both parents contributed £2.5k into each child account that would be £10k earning £350 pa tax free. Hmmm.....

    Alex
  • masonic
    masonic Posts: 23,053
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    Alexland wrote: »
    If both parents contributed £2.5k into each child account that would be £10k earning £350 pa tax free. Hmmm.....
    It wouldn't necessarily be tax free, see https://www.gov.uk/savings-for-children
    If it were contributed by another family member, however...
  • Alexland
    Alexland Posts: 9,653
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    But as above it would be within the £100 per parent per child limit? Assuming the child doesn't have any other taxable savings accounts. Am I missing something?
  • masonic
    masonic Posts: 23,053
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    Alexland wrote: »
    But as above it would be within the £100 per parent per child limit? Assuming the child doesn't have any other taxable savings accounts. Am I missing something?
    No, my mistake, I missed that you were talking about multiple children.
  • Alexland
    Alexland Posts: 9,653
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    With generally low interest rates and reducing expectations on the future prospects of both equities and bonds I am building a new appreciation for accounts paying around 3%. We will probably spend the rest of this tax year building up cash in the JISAs, Future and Regular Savers (rebalancing after recent stock market gains) before the S&S LISA contributions start again in April. iWeb won't see any S&S ISA trades for a while.
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