Is it true that if I give my child a lump sum, they will have to pay taxes on the money they save?

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Is it true that if I give my child a lump sum, they will have to pay taxes on the money they have saved?

Will my child have to pay taxes on their savings if I give them a lump sum?

Ask Gareth: Your children can earn a decent amount of money in interest before you have to worry about taxes.

After my father passed away, I recently inherited his entire estate.

I’d like to give my two young children, both under the age of ten, some money.

Will their savings be taxed, or will everything be tax-free?

We’ve given you our name and address.

To answer your question in a nutshell, they could be taxed on their savings.

Despite the fact that it’s difficult to imagine a seven-year-old working for a living, children are entitled to the same tax breaks as their parents.

As a result, a child can earn £12,570 per year before paying income tax – the personal tax-free allowance for the current tax year.

Furthermore, because we’re talking about savings interest income, they can take advantage of additional allowances.

The first is the personal savings allowance, which allows you to earn £1,000 in interest on your savings each year before paying income tax.

This is only for basic-rate taxpayers; higher-rate taxpayers get a £500 allowance, while additional-rate taxpayers get nothing.

The second is the savings’starter rate.’

This is designed to encourage low-income individuals to save by allowing them to earn up to £5,000 in interest before paying tax on top of their personal allowance and personal savings allowance.

As a result, your children could earn £18,570 in savings interest before paying tax.

Assume you’ve found a savings account that pays 2% per year.

Your kids would need over £900,000 in a savings account to earn £18,000 in interest.

So, as long as there’s a caveat, it shouldn’t be a problem.

Money placed in a savings account by a parent is taxed as if it were your own once the interest earned exceeds £100 in a year (or £200 if both parents give money). This is to prevent parents from using their children’s tax-free allowances to reduce their own tax bill.

All earned interest will be added to your savings income and taxed at your marginal rate.

In the United Kingdom, Infosurhoy provides a news summary.

Will I have to pay taxes on my child’s savings if I give him a lump sum?

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Is it true that if I give my child a lump sum, they will have to pay taxes on their savings?

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Will my child need to pay taxes on their savings if I give them a lump sum?

Gareth Shaw is head of money at Which?. To have your question featured on this page, email [email protected]

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Will my child need to pay taxes on their savings if I give them a lump sum?

Gareth Shaw is head of money at Which?. To have your question featured on this page, email [email protected]

Read More - Featured Image

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