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Can anyone explain how much children can earn before it's taxed etc?

(3 Posts)
NormaSnorks Fri 11-Sep-09 18:14:01

I have always been confused by this blush.

I know children have their own personal allowance etc, but isn't there a rule that they can't earn more than £100 a year from money that their parents give them?

We have always put the child benefit straight into an account for the children. The accounts are in in their name, and they are registered for no tax on interest.

HOWEVER

The capital amount has now grown, and they are earning interest of more than £100.
Does this mean we would have to declare it and be taxed at our (the parents rate).
Even if the interest is 'on the interest' IYSWIM?

I assume child benefit is regarded as 'our' money which has been give to the kids, and not 'their' money up front?

Any other (tax free) options to invest children's lump sums?

ABetaDad Fri 11-Sep-09 18:58:20

If children earn money from say modelling contracts, acting, selling paintings, sport etc that is their money and they are teated as individuals separate form their parents and have their own personal allowance.

If children own shares and they sell them and make a capital gain then they have their own capital gains allowance and are taxed as individuals. This a very complex area though and what I have said is a gross simplification.

If children earn dividends and interest from money given to them by a Grandparent, Aunt, uncle etc. then the child is taxed as if it is ther own income and have their own personal allowance.

The problem arises though if children earn dividends and interest from money given to them by a parent. In ths case, the parent pays the tax as if the parent earned it themselves. The £100 limit is a de minimis amount if it goes above £100 the whole amount (not just the excess over £100) is taxed at the parents marginal tax rate and paid by the parent.

I therefore declare the whole of my childrens income as mine as it is earned from money I gave them and it is over £100. I declare my childrens' interest and dividends on my tax return and pay the tax.

The Child Trust Fund scheme introduced by the Govt is a different matter and but the lnk should describe how it is taxed if at all.

By far the best way for children to be given money is by grandparents, Aunts, Uncles, etc. as any interest is taxed on the child as if it is the child's money. Here is an interetsng link that summarises the answer to the question Can You Avoid Tax by Giving Money to Your Children?.

scaryteacher Sun 13-Sep-09 18:01:54

I put the child benefit into an account for ds, but the a/c is in my name. I don't pay tax, and have registered with the bank not to, so the interest is tax free.

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