Keep your children’s money out of the taxman’s reach

Did you know that you could be taxed on interest earned by money that you’ve given your children? Here’s how to mitigate this and also how to make your children’s savings (and earnings) as tax efficient as possible

First things first: tax allowance

Children have exactly the same income tax allowance as adults – £10,600 in the 2015/16 tax year. While few will earn this much over the course of the year, they could still find themselves paying tax often unnecessarily on savings, investments and earnings as follows:

Tax on savings

Although children can receive interest on bank and building society savings accounts tax-free, it’s usually taxed before it’s added to an account.

What you can do: You just need to complete a form – R85 – to register a child’s interest as tax free. You can get this from their bank or building society or download it from HMRC.

If your child has an account and you haven’t already done this, don’t worry, you can claim the tax back. You’ll need another HMRC form – this time it’s an R40.

Tax on savings given from parents

As a parent you also need to be aware that if your child earns more than £100 interest on money you’ve given them (or £200 if both parents have given money), the taxman will treat this interest as yours and tax it accordingly.

Although interest rates are low at the moment, they may go up. If they increased to 5%, a child only needs £2,000 in their account to earn £100 interest a year.

What you can do: If you plan to give your children money that’s likely to earn this amount of interest, consider putting it into a tax-free savings plan instead.

Tax on investments

Although you need to be 16 years old to hold investments (children can open a Cash NISA at 16), there are a variety of investments that parents can hold on behalf of their children before they reach this age (after all, the earlier you start to save, the better).

What you can do: Invest in one of the many tax efficient investment plans available, which will potentially save money both before and after your child reaches 18.

Tax efficient investment options

If your child has a Child Trust Fund, you could top-this up, up to the current annual limit of £4,080 for the 2015/2016 tax year. If they don’t you can take out a Junior ISA for an under-18 year old. These also allow you to pay in up to the 2015/2016 allowance of £4,080 in stocks and shares and/or cash.

Or you can take out a Child Tax Exempt Savings Plan. These are long-term saving plans offered by friendly societies, such as Foresters Friendly Society, that allow you to save £25 a month for anything from 10-25 years. You can even arrange for them to pay-out on a special birthday, such as their 18th or 21st for example.

Both Junior ISAs and Child Tax Exempt Savings Plans offer several advantages:

  • The cash sum paid out is tax free
  • Any interest is paid free of tax
  • There’s no further tax to pay on dividends
  • There’s no capital gains tax to worry about on profits when they cash in the investment
  • They are also great for parents as the £100 rule doesn’t apply – so you could use these to put money away for your child’s future without having to worry about being taxed on the interest.
  • Plus, a Child Tax Exempt Savings Plan can be held alongside a Child Trust Fund or Junior ISA.

Tax on earnings

While it’s unlikely any part-time work on its own is going to take your child’s earnings beyond their tax free allowance its good to be aware of how it could affect them should the need arise.

Without a tax record, an employer will just pop them onto an emergency tax code until the tax office has worked out the correct code, which means they could pay tax unnecessarily.

What you can do: If you’ve pushed for a correct tax code, this may get sorted out while they’re employed, and their employer will be able to refund any overpaid tax through their pay.

But if it’s not sorted before they leave a summer job, they’ll need to claim it back from HM Revenue & Customs (HMRC) by completing a P50 form. To get one, contact HMRC or download it from their website. HMRC also has a useful calculator to help you work out if your children (or you!) have overpaid tax.

Please note:

This blog is based on our understanding of current tax rules and is intended to provide information, not financial advice, to help you make an informed decision about tax-efficient savings and investments.

Tax rules may change and depend on individual circumstances.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

Time is money! Don’t pay for a last-minute lifestyle…

We’ve all done it – paid express delivery for a late birthday gift or top whack for travel money because we’ve run out of time. But a bit of forward planning could save you a lot of stress, time and money…

Take out the guesswork

Setting up automatic bank payments for your bills and credit cards, can help to prevent the worry about late payment charges, additional interest or reconnection fees.

Make the most of your diary!

Dentists and other professionals can often charge for missed appointments, and you don’t want to accidentally let your home or car insurance lapse or automatically renew. So, make sure you enter ALL important dates in your smartphone or diary to help keep track and keep an eye out for any important insurance renewal information. Adding reminders will even give you time to plan ahead, particularly when it comes to special birthdays and anniversaries too.

All present and correct

Try to pick up suitable presents as you spot them throughout the year. Canny planners even buy a selection of birthday cards in bulk once a year, so they’re never caught short! Some online stores give discounts for a bulk purchase, so you could be quids in! Stocking up on Christmas cards and wrapping paper in the January sales can save you from forking out the full price later in the year too.

Travel savvy

If you need foreign currency, don’t leave it till the day you leave! Currency converters at airports charge a premium because they know you have no other option. Shop around early to avoid unnecessary charges, commission and poor rates of exchange. Money Supermarket has some useful tips.

Shop-wise

Have you ever been missing a key ingredient for your dinner party? Buying at the corner shop is usually more expensive. Instead, try to keep a shopping list on your fridge door so you can add items as soon as you run out. If you’d also like to keep an eye out for sales in your favourite stores, why not sign up to their email lists for news of promotions, discounts and deals on free shipping.

Annually only

A recent FCA report found that paying for your car or home insurance premium in monthly instalments could in some cases add up to 75% more in interest charges. Why not save money and pay your annual premium all in one go?

Get ahead of the game

If you still need help, here are some of the latest digital tools to help keep your budget on track:

  • Try a free digital assistant such as Google Now to keep track of birthdays and important dates. Alternatively, the 24me app auto-generates reminders so you’ll never miss an appointment, or forget to pay a bill. It also syncs with Facebook to send birthday messages to your friends in case it slips your mind!
  • Shoptagr is a Chrome browser extension that lets you ‘pin’ an online item, in your preferred colour and size, and alerts you when it’s on sale. The ShopStyle and Shop It To Me apps provide a similar function, while the GiftFinder app (from NotOnTheHighStreet.com) lets you create your own folders according to occasion or person.
  • Trainline’s ticket alert system emails you as soon as cheap advance tickets for a specific journey come on sale. Generally, the earlier you buy, the bigger the discount – up to 80% on some routes.

But if you struggle to change the habits of a lifetime, don’t despair. Buying late sometimes pays! Lastminute.com, for example, has last-minute offers for hotels, flights, spa/city breaks, theatre tickets and experiences.

And where can you squirrel away those savings?

Foresters Friendly Society offers a range of savings options which may suit your needs, depending on how much you want to save and how long you want to save for.

To find out more about them click here.

Source: The Guardian – Direct Debit Increases Insurance Payments, FCA finds.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

Average saving habits 2015: how do yours compare?

How much does the average person save in the UK?

This time last year, we took a look at the NS&I Saving Survey for an insight into the UK’s saving habits. The latest research has now been released, so it’s time for an update and another chance to see how you compare to the average saver…

Let’s take a look at some of this year’s key findings so you can see how your savings habits size up.

Average savings put aside each month: £113.77 (or 8.52% of the average monthly income), the highest level NS&I have recorded in 10 years.

  • This means we’re saving an extra £12.74 per month compared with last year
  • In monetary terms, men are saving more than women (£116.25 compared with £90.51), but in terms of percentage of income saved women are in the lead, saving 8.11% of their incomes compared to 7.63% for men.
  • Most savers (74%) are not saving for anything in particular but are still putting savings aside as they believe it’s the right thing to do.
  • Of the 26% who were saving for a specific goal, 42% were saving for holidays and special occasions , while 35% said they were saving for housing costs, including saving for deposits.
  • Despite saving more, nearly a third of savers – 29% – did not believe they had enough put aside in case of an emergency.
  • Savers who feel best prepared for an emergency are those aged 65 and over, with 73% feeling comfortable with their savings, while only 48% of those aged 35-44 could say the same.

Overall, it’s a more positive savings picture, which is good to see! No matter how little you can afford to put away, or how late you start, getting into a savings habit, can help you to plan for your future.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

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