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Avoid Tax By Investing For Your Child With A Junior ISA

March 1, 2016

Advice for property investors from Optimise Accountants

By Simon Misiewicz

Are you thinking about investing on behalf of your children?

Were you aware that you as a parent would pay tax on any income they make?

The problem – parents are unaware of the tax they should pay

I am often asked by parents if it is wise to invest in property on behalf of their child. There are many good reasons why you should, but there are also downsides, which I wish to focus on in this article.

Children receive a personal tax band just as adults do, and as such may receive income before they are taxed, but this is much lower than the amount for adults.

If you give your child money and it makes more than £100 a year before tax in interest (or £200 if both parents give money), all this income (not just the income over £100) will be taxed as if it were your own, which will result in the the parent being taxed on the income and not the child. So if you invest in a buy to let for your child and the property makes a profit of £2,000 per year, this will be added to your taxable income and result in a higher tax bill for you.

Let’s look an the example given on the HMRC website:

Example 18 – income less than £100 is not within ITTOIA/S629
A father makes regular gifts of cash to his two daughters aged 13 and 15 who deposit the money in building society accounts in their own names. The income arising to the children is £50 and £105 respectively and they have no other income. As the £50 income is less than £100, we would not treat it as the father’s income. However, for the daughter whose interest was £105, we would treat all the income as that of her father.”

The rather bizarre point on this is that parents are limited to £100 but people may gift their grandchildren any amount they like without incurring the above penalty. How on earth HMRC could police this policy is another point altogether.

This is why it is advisable for you to invest any money you wish to give your children into a Junior ISA, whereby you can invest money up to a limit of £4,080 (2015-16). The child can take control of the account when they’re 16, but can’t withdraw the money until they turn 18. Any income arising from the investment is tax-free.

If your child has £1,000 paid into their cash Junior ISA from 6 April 2015 to 5 April 2016, only £3,080 could be paid into their stocks and shares Junior ISA in the same tax year.

You can find more information about the types of Junior ISAs that you may invest in on the MoneySavingExpert website.

Next steps 

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar:

If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.



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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk