Chartered Accountants of Poynton, Cheshire

With the high cost of university and college education, encouraging children to start saving early can help them in later years.

Parents and grandparents may want to give some money to their children or grandchildren for the future.

There are several tax-efficient ways to do this and you will need to bear these points in mind...

A child has the same personal allowance as an adult, which is currently £4745 per annum. This means that if a child's income is below this level, they may not have to pay any tax.

This could be an incentive for a child to work within a family business at weekends and during school holidays as no tax would be deducted from their earnings. Also see 'Bits and Pieces' on the use of the P38(S).

If a parent gives money to their child, any annual interest over £100 earned from that money is counted as the parents' income (but see 6 below). For instance, if a parent puts £5000 in a bank account in the child's name, any interest earned on the account is treated as if it were the parent's.

However, grandparents can give money to their grandchildren without being affected by these rules. So, grandparents can put money in a unit or investment trust for their grandchildren, which can be a tax efficient-way of saving towards school or university fees.

Parents or grandparents can set up a trust to transfer their assets to their children or grandchildren.

From 6 April 2005 a parent will be able to contribute to a child's trust fund without any income from that trust being taxed as the parent's income. This only applies to children born after 31 August 2002.

Giving money to children can reduce any future inheritance tax (IHT) liabilities because a gift of £3000 a year is exempt from IHT.

You are sure to have many other questions that need answering for your particular situation.

Appletons will be pleased to advise you on how the tax rules of providing for your children or grandchildren affect you.