Tips to beat the taxman
There are still a number of ways you can reduce your tax bill.
Giving a helping hand
Introducing the concept of saving at an early age is no bad thing. But what are the tax implications...
Cracking the tax code
What effect do these numbers and letters really have on the amount of tax we pay?
Current rating: 5/5
Giving a helping hand
As a parent or grandparent you may want to give your child (or grandchild) a helping hand by giving them money regularly or as a one-off. If your gift is large, you may want to pay it straight into their bank or building society account instead of giving it to them directly.
Generally a child's savings account works in the same as an adults, however they are some savings account such as child bonus bonds that are designed specifically for children.
Interest earned on children's savings is likely to be taxable. If you're a parent or step-parent making payments into your child's account, then the interest will be taxed as your income if the money you have given produces interest of more than £100 a year. If the interest is less than £100, there won't be any tax to pay on it.
The limit only applies to parents and step-parents. Other family relatives or friends can give as much as they like to a child and they won't be taxed on the interest earned on their gift. However, if you give money to anyone, including a child, there could be inheritance tax implications. Some cash gifts are free from inheritance tax but in other cases, if you die within seven years of making the gift, inheritance tax might have to be paid.
Every child has a personal tax-free allowance meaning they can receive an income up to a certain amount each year without having to pay tax on it.
A parent or step-parent can apply for the interest on their child's savings to be paid tax-free, as long as this is less than the child's tax-free allowance or the amount of interest on the money given by the parent is less than £100 a year.
You can apply by completing a R85 form from HM Revenue & Customs. But first double-check if your child is eligible to receive their interest tax-free by completing a help sheet.
Source: Time For Money