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Where Taxpayers and Advisers Meet

Child savings interest, a little complicated

AGard
Posts:7
Joined:Sun Mar 29, 2015 4:45 pm
Child savings interest, a little complicated

Postby AGard » Sat Feb 04, 2023 5:33 pm

Hoping for a some thoughts please.
My son was left some money by a grandparent 7 years ago.
We initially invested it in a bond for 3 years.
When it matured, it good portion of it was loaned to his mother. A loan agreement was drawn up at the time, with more interest than available through bonds. I know that most would not agree with the idea of that loan arrangement, but it was done and has been repaid in full last year.
All of the inheritance (plus family loan interest) is now in a child savings account. That account attracts more than £1500 interest per year, and I’m now concerned that it has been “given by a parent” and will be taxed as such at the parents tax bracket. We have small savings as his parents, but this would eat up any allowances.
It’s a in usual situation I know, but would the money be classed as “given by a parent” as per the gov website, even though it’s really been “repaid by a parent” and originally came from grandparents.
Id wondered whether putting some of it in a JISA to avoid any issues, but the ISAs are a lower rate, and the Will said it should be available at age 21, whereas a JISA would be accessible at 18.
Many thanks in advance

chambersiain
Posts:41
Joined:Sun Feb 06, 2022 4:58 pm

Re: Child savings interest, a little complicated

Postby chambersiain » Sun Feb 05, 2023 10:14 am

Have a look at the thread I posted a couple of days ago. I guess if you have proof the child was left the funds through a grandparents estate and that your documented the loan you should be OK. The issue will be was the child legally able to make you an interest bearing loan? That's one for the experts.

The good advice that was given here was to use a JISA.

I actually don't have kids with cash so my thread was just out of curiosity, but it got me thinking about how it could be achieved.

It's a real shame that kids have an +£18K annual tax exemption that you can use unless you pimp them out to be a child model, actor or some other unsavory side show.

There must be away of using this for the sole benefit of the kid that doesn't clobber the parent or make use of the JISA which is best used for more illiquid assets such as stocks and shares.

What's stopping two like mind parents gifting each of their friends kids say £100K which goes into a 10 year savings bond for when the kid turns 18? Yes there could be complications with IHT if one the parents dies withinn the time period. But surely with these great minds on this forum we should be able to find a legit way of using that £18K annual Allowance for the sole benefit of the child.

AGard
Posts:7
Joined:Sun Mar 29, 2015 4:45 pm

Re: Child savings interest, a little complicated

Postby AGard » Sun Feb 05, 2023 10:48 am

Thank you for directing me to that thread.
One thing that picked up from one of your posts is this:

"She can earn up to £100 before you or your wife would be liable for paying tax on her income at your current highest rate"

Just wanted to ask - if I am higher rate tax payer, and my wife is basic rate, this means that it will have to be taxed at my rate? (The money was transferred via our joint account).

billypiper
Posts:114
Joined:Wed Aug 06, 2008 4:10 pm

Re: Child savings interest, a little complicated

Postby billypiper » Sun Feb 05, 2023 3:55 pm

As the Capital came from the Grandparents the the income and any Capital gains arise in her name personally

Therefore tax free allowances and |CGT exemption apply

Dennis

Taxexclear Ltd +447802704840

AGard
Posts:7
Joined:Sun Mar 29, 2015 4:45 pm

Re: Child savings interest, a little complicated

Postby AGard » Mon Feb 06, 2023 10:50 am

Many thanks.
When you say the income and gains arise in her name personally, do you mean the mother or the child?

bd6759
Posts:4415
Joined:Sat Feb 01, 2014 3:26 pm

Re: Child savings interest, a little complicated

Postby bd6759 » Mon Feb 06, 2023 11:36 am

He meant “his name”. It is the child’s income.

maths
Posts:8534
Joined:Wed Aug 06, 2008 3:25 pm

Re: Child savings interest, a little complicated

Postby maths » Mon Feb 06, 2023 6:15 pm

Income (eg interest) of a minor is subject to income tax on the minor.This is the case if the monies originated from grandparents as was the case here.

Only if the monies originated from the child's parents is any income then subject to income tax on the part of the minor's parents (subject to the £100 de minimise amount).

The fact that a loan was made to the minor's mother (which was repaid) does not alter the above. Whether it was in the interest of the minor (ie the beneficiary of a bare trust) to lend monies to mother (a trustee?) is perhaps challengeable.

frankgary
Posts:1
Joined:Fri Feb 24, 2023 3:12 am

Re: Child savings interest, a little complicated

Postby frankgary » Fri Feb 24, 2023 3:15 am

Income (eg interest) of a minor is subject to income tax on the minor.This is the case if the monies originated from grandparents as was the case here.

Only if the monies originated from the child's parents is any income then subject to income tax on the part of the minor's parents (subject to the £100 de minimise amount).

The fact that a loan was made to the minor's mother (which was repaid) does not alter the above. Whether it was in the interest of the minor (ie the beneficiary of a bare trust) to lend monies to mother (a trustee?) is perhaps challengeable.
Hello,
I have never heard of a minor filing income tax.
kt

Lambs
Posts:1618
Joined:Wed Aug 06, 2008 3:15 pm

Re: Child savings interest, a little complicated

Postby Lambs » Fri Feb 24, 2023 6:58 am

F,

Children are taxable on their own income and there is an obligation to file a tax return where the child has a liability to report. In practice, it may well be the parents who take on the responsibility, enlist accountants, agents, etc., but it is the child's liability UNLESS the parent, etc., is taxable on that income instead, as the deemed Settlor.

NICS are different - children are not liable to NICs on earnings until they hit age 16.

Regards,

Lambs


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