Saving for Children
A quick guide to children’s tax breaks
Saving for children makes perfect sense. And, with a bit of forward planning, your child’s savings can be completely unscathed by the tax-man. Here are some ways to gain maximum tax-efficiency, without giving up financial control:
Most children don’t pay tax
If you work and pay tax you are likely to be paying at least 20% tax on the interest your savings receive. But most children don’t earn enough income to pay tax, so any interest they receive should be entirely tax-free. If your child doesn’t pay tax, ask about registering their account for gross interest.
To prevent parents from using their children’s account to earn interest on their money, the taxman limits the amount of tax-free interest parents’ gifts can earn to £100 a year for each parent. But this limit doesn’t apply if the gift comes from anyone but the parent.
Managing your inheritance-tax liability
Inheritance Tax facts
Inheritance Tax has to be paid if your Estate is worth more than £312,000 (correct for tax year 2008-2009). You can give gifts of up to £3,000 each year, which will be exempt from Inheritance Tax and if you make a regular pattern of giving gifts, these are also exempt. In addition, you are able to give tax-free gifts to an older child getting married of £5,000 if you are a parent, £2,500 if you are a grandparent, or £1,000 otherwise. You can give gifts of a higher value, but if you die within seven years of making the gift they may be taxed at up to 40%.
Tax-efficient savings for children
Children born on or after 1 September 2002 are eligible for the Child Trust Fund. As well as the voucher (worth at least £250) from the Government, friends and family can add up to £1,200 a year to the account and all the money will grow in a tax-efficient way. Remember, only the child will be able to access the money when they are 18, which makes it a good tax-efficient way to save for their future. Find out more .
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Guide to Children's Tax