Children and tax
You may think, as many people do, that children don't pay tax. In fact, children are taxed in the same way as adults. They can currently earn up to £10,000 a year tax-free - through jobs, savings and investments.
Most children won't use up their allowance, so the interest on their savings is typically tax-free. But what many people forget is the fact that any interest earned on money given to a child by a parent is only tax-free up to £100 interest, per parent or step-parent. Where a child earns more than £100 in interest in a year, the child's earnings are taxed at the parent's tax rate.
Saving for children with a friendly society keeps things simple because, providing the conditions of the plan are met, bonus payments are tax-free.
Under current legislation, each person (including children) can save up to £25 a month in a Friendly Society Tax Exempt Savings Plan. There is no Capital Gains Tax or Income Tax to pay when you take out a child savings plan through a Friendly Society. To ensure the tax-efficiency of the plan, you must continue your monthly contributions for your chosen term. If this isn't the case, any gains the plan makes may be subject to tax. Tax rules may change and depend on individual circumstances.
What is Income Tax?
Income tax is a tax paid on income. It is paid by employees and people who are self-employed. It may also be payable if you aren't working if, for example, you have an income from a pension or savings. There is no minimum age at which a person becomes liable to pay income tax. What matters is the amount of your taxable income. If this is below a certain level, no tax is payable.
Income on which tax has to be paid includes most savings income for shares or trusts.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the gain (or profit) you make when you sell, give away or otherwise dispose of something.