Tax On Interest In Bank Accounts

[bednobs]

hi, my daughter has a bank account with 1k in it (lucky her--she's richer than me!)
i notice from her statement she paid tax on her interest this year (around £2)
do i have to fill in some sort of form,to say she doesn't earn enough to pay interest or is this right?

[factor-fiction]

There is a form. Normally the bank provides a declaration for you to sign it for a child's account I recall but there is a form on the HMRC website

[ubasses]

Yes, you need to complete an R85. Ask the bank to send you one, complete and send back.

[bednobs]

so she shouldn't be paying? (this is her only account/income)

[jno]

can't remember what the tax-free allowance is but it's some way over £2

[factor-fiction]

The personal allowance is nearer £9000 pa than the £10 interest she received.
Interest on a child's account is taxable as parental income though if it exceeds £100 a year

[ubasses]

Your daughter has the same tax free allowance as most standard rate tax payers. £9440.

[bednobs]

well that's crap - any money i give her has already been taxed.

[Psybbo]

Why not put it in a junior ISA?

[ubasses]

The only thing you would need to be concerned about is if you or your husband give her any money and she earns £100+ interest per year on in then it will be taxed as if it is yours/husbands.

[bednobs]

what about money that other people give her?
I absolutely don'r want it in an isa for many reasons, not least being that if we needed it we couldn't get it

[rockyracoon]

I open junior ISA's for my kids a few weeks ago (Halifax), whilst we were there the bloke said if a parent has an ISA with them as well the kids will get 6% interest, so I opened one lively, just stuck a tenner in it and that's it.

[rockyracoon]

Ah, ISA no good then.

[ubasses]

Money from friends family is ok, the rules are to stop parents hiding larger sums in childrens accounts to dodge tax. Just get the R85 from Bank or IR web site and get it in quick, It will be backdated to the start of the tax year.

[bednobs]

thanks tho rocky. I put the child benefit in it for her, and one day, we might need it i suppose. Also, they get it at 18 no matter what - they might be horrible by then, or want to spend it on a tattoo

[rockyracoon]

That's true Bednobs, I don't plan on telling mine anything about it til I'm ready though ;)

[factor-fiction]

>well that's crap - any money i give her has already been taxed.

The same point applies to all bank interest (other than interest in tax free accounts,mainly ISAs).

Even at a very generous 3% a year your daughter would need to have over £3000 given by you in her account before the interest reaches £100 a year. As others have said there is no tax where the money is given by others. In practice I doubt HMRC ever bother except in cases where parents are sheltering tens of thousands of pounds in the child's name

[bednobs]

thanks - it os actually 3%pa i think, and i will put in about 1500 a year

[factor-fiction]

The interest will exceed £100 a year after around 3 years so in theory you will be liable for tax, just as if it was your money. If the child is under a certain age and you have control of the account then it is regarded as your money since in theory you can withdraw it and use it for yourself. I'm not saying I agree with taxing savings income - I'm just setting out the taxarrangements