Giving money to your children or investing on their behalf
15 August 2008
You may feel you want to retain some control over your children’s savings if you think they are likely to squander it if they can get ready access to it.
Keeping it in your name means the interest is taxed as if it were your savings, so most parents and guardians act as ‘trustees’ to their children’s savings which are held in what are known as designated accounts.
However to ensure their savings are tax free you need to fill out the HMRC R85 form.
The £100 rule
To prevent parents and guardians from simply putting their own their savings into their children’s account, the taxman limits the amount of tax-free interest parents’ gifts can earn.
This limit is set at a maximum of £100 a year for each parent. Therefore, you must be careful not to go over this limit as the government won't just tax the amount that is over the £100 limit, it will charge tax on the whole of the interest and if you are a higher rate taxpayer it will be at that rate!
This rule only applies to parents and step-parents – not to other relatives, godparents and friends.
Some savings, however, such as CTFs, are exempt from the £100 rule, as are Stakeholder Pension plans.
