Child's saving account

A question about : Child's saving account

My father-in-law wishes to give around Ј6000 to my daughter.
We have just opened an Alliance & Leicester first saver account,following advice from Martin , but we were wondering if there are limits as to how much can be paid into the account before the powers that be take an interest (sic).
Will this amount be taxable or anything ? :-/

Best answers:

• I've been looking at this recently and I think..
  your daughter has the same tax allowances as anyone else - if she earns more (from interest) than the current limit (Ј4745) then she will have to pay tax,
  any interest she earns in excess of Ј100 which comes from money that you (her parents) have given her will be considered as your income and taxed accordingly, this is a cummulative figure not a per annum allowance
  interest earned from money given by grandparents is tax free
  parents and grandparents can give tax free amount of Ј3000 per annum (not sure if this is each grandparent but I would think so).
  Like I said this is what I think - we need an expert to confirm! ;D
• My brief investigations seem to concur with yours.
  Her grandad can only give her Ј3000 tax free.
  So,the next question is,what tax will be payable if he gives her Ј6000 and how is it collected ? ??? :-/
• I think the Ј3000 gift allowance relates to inheritance tax only, and is only an issue if the total value of the grandparent's estate is above the IHT threshold and he or she dies within 7 years of the gift. In fact you can claim an allowance for two consecutive years against a larger gift, so that provided no more than Ј6000 in total has been gifted out of the estate in any two year period, there are no tax issues (as I understand it, but check with the IR).
  Obviously you can make larger gifts, but at the possible risk of incurring an inheritance tax liability (at 40%) if the giver dies. This probably isn't a big problem in practice, as there will be money in the estate to pay the liability. This would have to be paid anyway, since if not given away, the money would still be in the estate (unless spent on a cruise or something!) so there's no net loss.
  As regards tax on interest, the children have their own tax free allowance of around Ј4500 which they can earn up to from any source. The exception is for interest gained from gifts by parents which is limited to Ј100 before tax is payable - this is to avoid an obvious tax dodge which is to put money into the names of minors to pay less tax on interest while retaining control over it. Gifts from grandparents don't come under these restrictions.
  The IR would probably investigate if they thought that circular arrangements (gifts to grandparents then back to children) were being made.
  You'll find the IR very helpful at giving definitive answers to these questions if you ask them.
• The Inland Revenue were helpful in manner,but not in outcome.
  I'm none the wiser.
  Confused beyond belief.
  It would appear that Ј3000 is the 'limit' at which tax is never an issue.
  Anything over Ј3000 appears to be potentially taxable if my daughter's grandfather dies with 7 years of making the gift.
  Ho hum...what a minefield.
  Only the Inland Revenue could make giving a gift such a Grief-filled experience.
  I've tried downloading their leaflet on inheritance tax and it reminds me of the Monty Python sketch about kids having gym moving their clothes to the lower peg,unless their brother has scripture,in which case etc.etc.etc.ad nauseum. >
• The bottom line is there is no immediate tax liability on the gift of Ј6000, so you can accept it without worrying.
  If the worst happens, and the grandparent dies within 7 years, you just need to tell whoever is dealing with the estate. There should be no tax provided there is one gift only of Ј6000 and this was the only gift made in a two year period (i.e. last year and this year, or this year and next).
  If there is IHT payable, you haven't lost anything because had the gift not been made it would still be in the estate and therefore taxable. In fact making the gift is a very sensible move to make use of the gift allowances and get cash out of the estate.