Withdrawing from childrens bank accounts (tax free interest)

[WeAllHaveWings]

I have a Halifax children's bank account for ds with 3% tax free interest rate. It also allows withdrawals. It has ~£10k in it for ds so far, but can have up to £20k in it.

It is a standard children's bank account (not CTF or Junior ISA), and I control and can withdraw until ds is 16 (plan to withdraw all at this point and put somewhere else until he is older and has something meaningful to spend it on i.e. uni/house/car)

Is there anything to stop me putting my own savings in there too and withdrawing when/if needed as the interest rate is much better than my current ISA (around 1.5%). They are rainy day savings so might not need to use them at all and will end up with ds anyway.

Or any other suggestions for best interest rate on ~£12k in savings. Would like it to be low risk and instant access.

If inland revenue investigate you they will figure out that your hiding your savings in his account. Staff in the banks take a pretty dim view of it too. The terms and conditions of the childrens account may also state that withdrawals have to be for the benefit of the child.
Have you looked at the Santander 123 account? Basically it's a current account that pays up to 3% on up to 20k.

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When I was a cashier in a building society I reported a lady for doing what you suggest. I knew she was doing it as she would come in and ask to draw off cheques for builders, credit cards payments etc.

It's morally wrong, but also illegal as its a form of tax evasion.

There is a yearly maximum amount that each parent is allowed to put in a child's name without it being liable for tax.

Ok, will keep savings away from ds's account. I have a current account already that pays 3% taxed (BOS Vantage) but don't like to put savings in it so me and dh don't start dipping into them.

Will get back to mse and try to find a better ISA.

The tax limit is i think £100 per parent so you are already exceeding it at 300 interest, unless i think it was given by other than parents

Eg from which?
If you give your children money and it makes more than £100 a year before tax in interest (or £200 if both parents give money), all this income (not just the income over £100) will be taxed as if it were your own.

If income from your gift is likely to breach the £100 limit, then you should put your gifts in a tax-free investment. This can be a cash child trust fund (CTF) if you opened one before December 2010, or a tax free Junior Isa. The 2015-16 annual limit is £4,080.

The £100 limit applies to income from gifts from parents only, not other family members.

Bank never mentioned that! Just filled the forms so not to deduct tax.

Back to the drawing board. He has a CTF but just from the initial £250 voucher, didn't like the idea of having no control over it when he turned 18 so we did a standard bank account instead, may need to reconsider this.

We pay 100 per month into a Halifax regular saver for each child. This then keeps it within the tax limits.

I assume they brought it in to stop parents doing what you suggest on the thread.
I just did a child bond with ns&i. It is tax free for child (and the parent re this £100 thing) but again i think belongs to child :(
I think they need to change the child isa rule about it being theirs totally at 18 as it seriously concerns me enough to put me off saving in their name.
Also having more than x in bank will mean they cant claim jsa etc if dont get job immediately as its means tested.
You just dont know what they will be like at 18, as i wouldnt want money wasted on fags/alcohol/drugs
I would probably look at a 3yr fixed (no withdrawls once they hit 18)
Not sure how they would police this £100 rule as its per parent, they would need to know that child still has 2. Then also over several childs accounts.
Oh and then to determine that its been paid in by parents not gp/birthday/xmas gifts from others.
It is annoying childs isa at say 3.25% vs adult one at only 2.25%
I wonder if a shares childs isa would be more difficult for them to withdraw at 18

i think they automatically get control when they are 16,not 18.
Dd had inherited some money which is held in trust until she is 18( part of the will) and we have paid it into Hargreaves Lansdowne in an ISA i think. It has been a pain to set up. She has her own bank account and had her own card since 11.

Mine (coventry bs) says no access to money till 18. Though its possible they start addressing letters to child before that.

My child saver at halifax say the following online
To prevent a parent or civil partner from using their children’s account to earn interest on their money, HMRC limits the amount of gross income/interest that the parent's or civil partner’s gifts can earn to £100 a year for each parent or civil partner. This limit doesn’t apply if the gift comes from anyone but the parent or civil partner. Please note that it is the parent’s or civil partner’s responsibility to declare this to HMRC if required to do so. For more details, please visit HM Revenue and Customs at www.hmrc.gov.uk.

this is what i was thinking of

When can a child take over control of their savings account?
This will depend on the account, the account provider and when it seems appropriate for them to do so – there’s no one set rule. However, a child takes over the management of their Child Trust Fund account when they turn 16, although they don’t have access to the money until they are 18.

Oh boy, ignorance was bliss, now I'm worried about this. It only needs £3.6K in a 3% interest account to start earning over £100 interest a year!

In his current savings account he has ~£10k so is making ~£300 interest a year. He should having been paying ~£60 a year tax on this for the last few years................(means net interest is actually 2.4% which is not too bad a rate)

Would have been much better to not have filled in the R85 form at the bank and just let it take the tax off automatically. The bank didn't tell me this when I opened the account and transferred in £5k, just said here's the R85 form, if you fill it in he wont pay tax on interest and we filled in there and then and they sent away. The form does not mention the £100 limit.

Some of the money is from relatives rather than us, but not knowing this at the time its mostly been deposited via my bank and I don't have a paper trial to prove it. For example £5k originated from his great grans small estate, she wanted him to have it but never did a proper will so the money came to dh and we put into ds's account. A couple of £k could be birthday money over the years (I have a very large family widely spread who send me cheques/cash for birthdays and we put £100-£150 of it into his account each year, but again no paper trial).

Does anyone know if you can "reverse" not having the tax taken off on an account so it happens automatically?

Has anyone actually contacted the HMRC to pay tax on children's accounts interest? How much of a paper trail for money from other relatives do they ask for?

to get adult best rates on £12k (will be taxable), open the following accounts:

Club Lloyds: £5k at 4%
TSB Classic Plus: £2k at 5%
nationwide flexdirect: £2.5k at 5%
Tesco current: the rest at 3%

they all need a certain amount paid in each month, read the details and set up standing orders to have the same money going round. The club Lloyds needs two direct debits too, so either transfer some or set up a Tesco instant saver account. This latter pays bugger all interest but can be set to 'pull' money from other accounts, which is seen by the other account as a direct debit.

should you have more, the Santander 123 pays 3% on up to £20k, with a £2 a month fee. Also needs direct debits but pays cashback on bills.

yes, work to do - but savers are dirt to this and other governments so this is essential to stay ahead of real inflation which is NOT zero.

On gov.uk
Interest on savings for children
You can invest in a tax-free account for your child, like a Junior ISA or Child Trust Fund. This means tax won’t be deducted from the interest.

Other accounts
For other children’s accounts, there’s usually no tax to pay unless the child:

gets more than £100 in interest any tax year (6 April to 5 April) from money given by a parent
has an income over their personal tax allowance of £10,000, eg a trust
Banks and building societies automatically deduct tax from interest on these accounts at the basic rate of 20%. You can ask them not to do this for your child’s account by filling in form R85.

Reclaim tax
If tax has already been deducted, fill in form R40 and send it to HM Revenue and Customs (HMRC). It takes about 6 weeks to get a refund.

HMRC
Leicester & Northants (Claims)
Saxon House
1 Causeway Lane
Leicester
LE1 4AA

If your child gets more than £100 interest
You need to tell HMRC if your child makes more than £100 in interest from money given by one parent, or more than £200 if given by 2 parents.

The interest should be taxed at the rate the parent pays on their own savings interest.

Example
As a parent you save £5,000 in your child’s account with interest of 2.5%, your child will make £125 in interest. The interest is more than £100, so if you’re a basic rate tax payer, tax should be deducted at 20%.

The £100 limit doesn’t apply to money given by grandparents, relatives or friends.

I think because there are 2 of you then £200 limit. So only £100 too much per yr so £20 tax per yr. but also not knowing when the rule came in and him being 11..
So will have had as you say a lot from gp.
Also it sounds like its taxed at parents rate, so if you say dont earn enough to pay tax on saving.

It seems a sensible rule but may not be remembered after opening an account. So you think, oh dont need to worry about that, im not putting over 6k in but then you get extra money or even interest rates change.
So if it goes up to 5% on the acc at £6k thats £300 and then interest is added to account too, though i guess as it isnt given by parents thats ok but if you could go over you would as you say need to keep track.
Add the extra to his ctf/move to isa.