I have a couple of fixed Bonds with Nationwide for my 2 grandchilodren, each under 7 years old. When I took out the Bonds the children were not allowed to be named on them (because they are under 7) but I completed R85s and the first year's interest was paid gross. Tax has been deducted from the second year's interest and Nationwide say that, although the Bonds are shown as being for the children they are required to deduct tax because the Bonds are in my name! They appear to be acting on the advice of their Legal Department. What is the tax position please. I am a retired pensioner paying tax at the standard rate.

Let them take the tax as planned so it covers their liability, then reclaim it back from HMRC on a R40 claim form (link below). You may have to satisfy the revenue that the bonds are entirely for the benefit of the Grandkids by signing a delaration or providing a undertaking to that effect, if they require it.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/PensionsAndRetirement

/MoneyInRetirement/DG_10024687