Child Tax Credit

What’s Children Tax? How Can One Have Full Entitlement to It?

What are the chances that a tax credit is chargeable? If it’s a child care tax credit, it is chargeable.  Take care of your child’s personal allowance and relief.

The rights and obligations of a child with taxable income rest with the child. Although, his/her representatives treat the child under general law.


When can one have full entitlement to children’s law?


A child is less than 18 years old.

In England and Wales, the testamentary age is 18, whereas in Scotland it is 12. This is the ideal age for people to make a will. The only two exceptions are for:

  • A soldier on active duty
  • A sailor at sea.

In these limited circumstances, the child can be any age. These exceptions have been in place since 1918, the year World War 1 came to an end. It realizes that young people can place in dangerous situations. During the course of active duty, or whilst working at sea. which should have the opportunity to record their wishes.

The youngest age a child can work part-time is 13. Except children involved in areas such as television, theatre, and modeling. A performance license requires in these circumstances.

Children can start full-time work only when they have reached the school leaving age. The specific dates are different for England, Northern Ireland, Scotland, and Wales. Although, the child has to be over 16 years of age.


Children and companies


There is no statutory provision prohibiting a child from owning shares. Some companies accept shareholders under the age of 18 years. A provision is given in the article or terms of use.

The issue to children of shares in the family company held to be a settlement.  You need to understand the dividends that are taxable as the parents’ income (Bird v HMRC [Sp C 720]).

All these are subject to very limited exceptions. A child under the age of 16 cannot appoint as director of a company as per (CA 2006 s157).


What Gifts should be given to the Children?


If a parent gives an asset to their child then that income is taxable.  It’s subject to certain exceptions to be treated for the parent and not the child for tax purposes. This would cover assets such as money, shares, and property (to receive rental income).

What’s the initial transfer on this income, you ask? The initial transfer is subject to capital gains tax. This transfer is to a connected party. Thus, it would deem to occur at market value.


What’s Parent Income?


The income would be treated as the parent’s income. Thus, if the child reaches the age of 18,  the income would treat as that of the adult son/daughter. The total amount that would otherwise treat as the parent’s income.

For that year in relation to any particular, a child does not exceed £100. That’s the income not treated as the parent’s income. It can be also treated as the child’s income.

Children can earn up to £100 per annum in interest on money given to them by a parent. That income will be treated as income of the child for tax purposes. If the child gets more than £100 in interest from money given by a parent. Then the parent will have to pay tax on all the interest. Thus, if it is above their own Personal Savings Allowance. So, at that parent will need to put the entry on their individual self-assessment tax return.

This only applies to transfers between parents and children. So if a grandparent gifts an asset to a grandchild.  So, In future income from that asset would treat as that of the grandchild for tax purposes.

A Child Trust Fund (CTF) is a long-term tax-free savings account for children. There is no tax on the income or gains of a CTF. There are no tax charges when the fund matures on the child’s 18th birthday. No CTFs can open for children born after 2 January 2011. With effect on and after 6 April 2015. all the savings in a CTF will transfer to a junior ISA for the child in question, with the CTF then being close.

Anyone (including the child) may make payments to the CTF. Although, there is a limit of £4,368 (£4,260 before 6 April 2019) for any one year (the subscription year). A subscription year is a period from the opening of the account to the child’s next birthday. So, each succeeding period of 12 months.

Withdrawals from the account are not permitted before the child reaches the age of 18 except in three circumstances as follows:

  • The account provider allows deducting management fees and incidental expenses.
  • where the child is ill.
  • where the child dies before reaching 18.


Junior ISA (Individual Savings Accounts)


There are two types of Junior ISA:

  • Cash Junior ISA
  • Stocks and shares Junior ISA.

The child can have one or both types of Junior ISA. All income and gains are tax-free.
The Junior ISA belongs to the child. The parents or guardians will usually manage the account. Although, the child can manage the Junior ISA if over 16 years old.


Understand Children and Contracts


For a contract to be valid, all parties must have the ability to understand the terms of that contract. In general children, under 18 lack the capacity to enter a contract. If the contract is for needs, schooling, or jobs and the conditions are equal, and the child benefits.

The law presumes that children under seven years of age do not have the power to enter into a contract. Although a minor between seven and 18 can enter a contract. There’s a feeling they don’t realize the ramifications of entering into the deal. This means that the minor is able to cancel a contract at any time before reaching the age of 18. Thus, for a reasonable period afterward without a valid reason.


Courtesy: ACCA

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