Basic Tax Saving tips for UK taxpayers under 18
We have seen a number of people, and no doubt you will have heard of, celebrities, footballers and others who have entered
into complex arrangements which failed to save tax and now face bankruptcy. We find this very frustrating, especially when
they have not used all of the benefits HMRC actually wants you to have,
If you are multi-millionaire, these measures may seem of limited value, but as they say, every little helps, and if you have
children, there are more tricks of the trade. This paper starts with the simplest, and gets more complicated as it goes on.
For tax purposes, any income from funds from parents is taxed on the parents if it exceeds £100 per year. But income from
funds given to the child by other relatives or funds, is the child’s income until the child’s personal allowance has been
Building Society accounts
Even if you as a parent does not fund one for the child, you should open one for gifts from others.
Friendly Society bonds
These are investments in shares on the stock market and are the low cost option which every man, woman and child can
buy. They are totally tax free, issued by friendly societies and the main downside is that each individual can only invest up
to £25 per month. Bonds are typically for ten years, which is £3,000 of investment, invested over ten years, and bonds
redeeming now can easily pay back over £10,000. Parents or guardians can open one for each sibling.
Parents, make a will (and a lasting power of attorney)
One could consider using an IHT nil rate band to leave money tax free on your death to your children.
We are staggered at the number of clients who do not have wills. Why are we staggered? Because
• You definitely WILL die. It is not an if, it is a when.
• Unless guardians are appointed in your will and your spouse’s will, any minor children surviving your deaths, will
start off in local authority care, as if losing both parents isn’t stressful enough for a child.
THE FOLLOWING TAX EFFICIENT IDEAS ARE FINANCIAL PRODUCTS. NO ADVICE IS GIVEN IN RESPECT OF
THE SUITABILITY OF THESE INVESTMENTS AND YOU MUST CONSULT A QUALIFIED AND REGULATED
FINANCIAL ADVISER. WE ARE NOT SO QUALIFIED, AND ADVISE ON TAX MATTERS ONLY. WE ARE NOT
AUTHORISED TO SELL OR BROKER FINANCIAL PRODUCTS.
NS&I (National Savings and Investments)
These can be, and should be regularly checked as new products come on stream regularly and some are tax free.
NS&I used to issue Children’s Bonds and if they reappear, they are worth looking at.
One of NS&I’s products, which gives the monthly thrill of possibly winning £1m, is Premium Bonds. Each person can have
up to £50,000 each and the return is 1.4% tax fee split randomly between all bondholders. A fun way to get a very solid
return. Children can also have Premium Bonds up to the usual £50,000.
JISAs (Junior Individual Savings Accounts)
JISAs can be opened for children aged 0-15, and children 16 to 17 can open their own. A JISA is a cash only and cash
cannot make any withdrawals before the age of 18. It currently pays 2.5%, tax free and current maximum investment
£4,260 per annum.
Cash ISAs can be held by individuals 16 and over, Equity ISAs 18 and over, so if you are 16 or 17 then you can have a
cash ISA and a JISA at the same time.
Once upon a time, a one-eyed UK Finance Minister, implemented a huge reform to the UK pension regime. A once in a
lifetime event. That turned out to be a huge over-promised and mis-sold product. Hardly a year goes by without some
change to the rules.
Notwithstanding the many changes to the law, pensions are still worthwhile due to power of compounding and now have
more flexible draw downs. Many younger people believe that tying in to a 40 plus year contract, which can be altered at
the Government’s whim at any time, to be too great a risk, but pensions are a very long play. Currently they cannot be
cashed in until the person is 55 or retires earlier through ill health. So a parent can pay in £2,880 p.a. and HMRC gross it
up to £3,600.
Some practical points, speak to your financial adviser. If starting a pension find one with the lowest annual fees, if you
project what these will total over 40 years, you will question who the main beneficiary of the pension is, you or the fund
manager. Second, most UK pension contracts do not contain the modern drawdown provisions so you going to have to
consolidate them into a new pension scheme, which you can only due through an IFA