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Childrens Accounts / Overseas

Discussion in 'Finance & Banking' started by rx2, 2nd Apr, 2009.

  1. rx2

    rx2 Member

    Joined:
    5th Mar, 2009
    Posts:
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    Location:
    Sydney, NSW
    Hi,

    Last year we had a little son here in Australia. We are british, but emigrated over 7 years ago and now have permenant residency. My mum who stills lives in England wanted to setup a savings account for our little chap in the UK, so when he is old enough (16/18), he could get access to it. She was planning on contributing 20GBP a week. Calculate it out and it will be a nice sum at the end - great mum!

    Anyway got me thinking about the tax implications, and whether it is best for her to set it up in the UK, or here in Australia? I still have a UK bank account with a visa debit card that I can use here in Australia, there are no transaction fees, and the exchange rate is excellent. One option is for me to open a childrens account here in Australia, and for my mum to deposit the money into my UK bank account, and draw it out here in Oz for payment into his account.

    Does anyone know what the tax implications are, and what would more beneficial in the longer term, a UK account, or Australian?

    Cheers

    Robert
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
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    4,623
    Location:
    Sydney, Australia
    A minor can earn up to $642 pa tax free ... so if you are earning an average of 4% interest (unlikely you'll earn even this much over the next couple of years though), you need to have over $16K in the account before you earn enough for tax to become a problem (although once you do is does become a problem since the tax rate for minors is rather high).

    The question is - what are the tax implications of interest earned in the UK by a minor in AUS, and also - what will the impact of currency fluctuations have on overall earnings/value ?
     
  3. rx2

    rx2 Member

    Joined:
    5th Mar, 2009
    Posts:
    5
    Location:
    Sydney, NSW
    Good question! I am assuming the child would have to do a tax return and declare it as foreign income? Not sure what taxation would be applied to it though?

    Taxation for children in the UK is pretty good

    First let's dispel a myth; childrens' savings are NOT automatically tax free. In fact they're taxed identically to adults, so each child, just like each adult, has an annual personal allowance (currently £6,035), the amount earnable from salary, savings or investment income before it's taxed.

    However if a child generates more than £100 interest in the course of the year from money specifically given by each parent, this income is taxed at that parents' tax rate. This rule does not apply to anyone else though, so grandparents etc can give the child as much as they want. Since it is going to be the childs UK grandmother giving the child regular savings, the £6,035 limit applies.

    Now - the question is to the taxation experts on this forum.... are they able to answer the question above regarding what would be the Australian tax implications for the child having a UK bank account, and how would it be taxed?