Tax on Children’s Savings
All children in the UK have their own personal allowance, currently £12,570.
If you give a sum of money to a child under the age of 18, HMRC will generally deem that the money still belongs to you and you will be taxed on the interest that the money in your child’s bank account earns – if it is above your own Personal Savings Allowance (PSA) of £1,000.
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.
There is an exemption though – no tax is payable if the interest doesn’t exceed £100 (before tax) annually. Providing this limit is not exceeded, any interest earnt will be treated by HMRC as if being received by the child. The £100 limit is per parent, per child
However, that £100 limit can be easily reached with the top children’s easy-access account paying interest at 5.25%, meaning that once you have £1,900 saved, you’ll hit that limit.
The £100 limit does not apply to money given by grandparents, family or friends.
Escape the tax hit on children’s savings
Interest earned on ISA accounts or Child Trust Funds isn’t taxable. The 2024-25 subscription limit for both CTFs and Junior ISAs is £9,000. This means anyone who has built up decent savings outside an ISA can transfer up to that amount each year
We support our clients by making sure they pay themselves and their families as tax efficiently as possible whilst making the process easy for them. Of course, we take care of all the personal and company tax return side of things too. Please contact us if you’d like to discuss your personal or business tax planning then please contact us on 01386 366741 or email here and one of our advisers will be in contact.