Bank and building society interest - Example 5

Vicky, aged 12, has £7,200 in her building society account. Her father had given her £2,400, her mother £1,200 and her uncle £3,600.

The interest on the gift from her father comes to more than £100, so Vicky’s parents cannot register her account to get interest without tax taken off.

The interest Vicky gets and the amount of tax that can be claimed back are;

Father’s gift

Her father’s gift of £2,400 produced net interest (that is, after tax was taken off) of £88

The amount the building society took off for tax was £22

The ‘gross’ interest is £110

As the gross interest is over £100, none of that £22 can be claimed back.

The interest is treated as income of Vicky's father and taxed accordingly.

Mother’s gift

Her mother’s gift of £1,200 produced net interest (that is, after tax was taken off) of £44

The amount the building society took off for tax was £11

The ‘gross’ interest is £55

As the gross interest is under £100, Vicky’s parents can claim back for her the £11 that was taken off.

Uncle’s gift

Her uncle’s gift of £3,600 produced net interest (that is, after tax was taken off) of £132

The amount the building society took off for tax was £33

The ‘gross’ interest is £165

As people other than parents are not affected by the £100 gift rule, Vicky's parents can claim back for her the £33 tax that was taken off the interest from her uncle’s gift.

The total Vicky's parents can claim back for her is therefore £44 (£11+£33).