Many parents, grandparents and other family members like to save for children but are you paying tax on the interest?
The £100 Rule
HMRC Form R85 is used to claim interest tax free but what you might not realise is that despite your child having a personal tax allowance from birth there is a maximum of £100 per year which can earned tax free in interest and dividends earned on parental/family gifts.
So for 2 parents that’s £200 plus grandparents have the same exemption, but if the interest exceeds the limit even by a small amount, the exemption is lost and whole amount of interest becomes taxable.
Junior ISA
Children can have an ISA in their name, the maximum annual contribution limit is £3,720 (2013/14) in cash or shares but the money will be locked in until the child is 18. The £100 rule doesn’t apply to ISA’s.
Pension
Yes, crazy as it might sound your baby can start a pension plan.
You can receive 20% tax relief even if you don’t pay tax. The maximum you can contribute is £3,600 gross – a payment of £2,880 to which the taxman adds £720. This is the case even for people who don’t pay tax, such as children and non-earning spouses.
steve@bicknells.net
