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Saving for children

If a parent saves money in the child’s name in a standard savings account then if the interest is over £100 it will be taxed in the parent’s name.

So, you can only save a few thousand for a child before the interest is taxed. However, grandparents can save for grandchildren without the same problem. And, a child has a tax free allowance of £10,600. So, a child could have a couple of hundred thousands of pounds of savings from grandparents and not pay tax.

This is why it can be worth families discussing arrangements and possibly gifts skipping generations.

But, parents can save for their children in a tax free environment called Trust Funds (CTFs) and Junior Savings Accounts (JSAs).

From April 2015 parents can transfer savings held in a Child Trust Fund (CTF) to a Junior Savings Account (JSA), which can pay better rates and may have lower charges.

Money held in a CTF or JSA is locked away until the child reaches 18.  But, the income is tax free. A JSA operates in the same way as an Individual Savings Account (ISA). The maximum investment is £4,800 so there is scope to make tax free investments for children.