COMMENT
Kids Who Get Taxed

The Nationwide Building Society made a jolly good point earlier this week when it criticised the Government's tax treatment of parents whose children don't qualify for the Child Trust Fund scheme.

The point is this: how come parents of qualifying children (i.e. those born after 31 Aug 2002) can contribute up to £100 a month to a Child Trust Fund with no tax penalties while parents of non-qualifying kids get taxed on the interest earned by their contributions to their child's savings once it exceeds £100 a year?

The Child Trust Fund scheme was introduced in April and all qualifying children should have received a gift voucher, typically worth £250, from the government. They'll get a further amount, probably £250 again, when they reach the age of seven. Parents are encouraged to add up to £1,200 a year to their child's trust fund in order to ensure that when they turn 18, they've got a nice little tax-free sum to start them off in their adult life.

Children born before 1 September 2002 have no such luck so their parents have to save for them independently. And if the interest earned each year exceeds £100 (£200 if both parents contribute), then the parents get taxed on it.

Nationwide calculates that if a parent wanted to put away £1,200 pounds a year for a child who's too old to qualify for the Child Trust Fund, they'd only be able to do it for two years before they started being taxed on the interest earned. It's hardly an incentive for those parents to contribute to their child's savings account.

As three-quarters of all children have a savings account of some sort, Nationwide wants the Government to relax the £100 rule so that parents of children over three and under 16 (16-year-olds can open a tax-free cash ISA), can be encouraged to save for their kids without the tax penalties.

It seems only fair, don't you think?

Find out more about Saving for Kids.