Interest on children’s savings

Posted on 11th June 2024 by Streets - Income Tax

All children in the UK have their own personal allowance, currently £12,570. There are special rules if a parent gifts significant amounts of money to their children which results in them receiving bank interest of more than £100 (before tax) annually. If this is the case, the parent is liable to pay tax on all the interest if it is above their own Personal Savings Allowance (PSA). These anti-avoidance laws are designed to prevent a child’s personal allowance being used by parents of children aged under 18, with some minimal exceptions.

The PSA allows basic-rate taxpayers to receive interest of up to £1,000 on savings income tax-free. For higher-rate taxpayers the tax-free PSA is £500. Taxpayers paying the additional rate of tax do not benefit from the PSA.

The £100 limit does not apply to money given by grandparents, relatives or friends. In addition, any income from Junior ISA’s or CTF’s is exempt from Income Tax and CGT on the child or the parent even when the invested funds came from the child’s parents. The 2024-25 subscription limit for both CTFs and Junior ISAs is £9,000.

If older children are employed by a parent they can receive income paid as wages subject to the usual employment rules.

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