Children's savings accounts: Children and income tax

Happy families

Children aren't exempt from paying income tax

Being under 18 doesn’t mean you’re not liable to pay tax – even babies are liable if they have enough income.

Children and the personal allowance

Like adults, children are allowed to have a certain amount of income each year before paying tax, with anything above that liable for tax. 

The tax-free amount is the same as for adults, meaning the impact on your child is likely to be minimal as, during 2016/17, they will only pay tax if their income exceeds £10,600.

Many children don’t have earnings as such of course, so their allowance is applied to their income from other sources, such as savings and investments

If the return they get on their savings and investments is less than the personal allowance they won’t have to pay tax.

Make sure your children can earn tax-free

To make sure your children don’t pay tax unnecessarily, complete form R85 when you open an account in their name. Don’t worry if you haven’t done this though, if your child is paying tax for which they are not liable you can reclaim it for them using form R40.

You can get an R85 direct from your bank or building society, or both forms are available on HMRC’s website.

Watch out if their savings comes from you

If you give your children money and it makes more than £100 a year before tax in interest (or £200 if both parents give money), all this income (not just the income over £100) will be taxed as if it were your own.

If income from your gift is likely to breach the £100 limit, then you should put your gifts in a tax-free investment. This can be a cash child trust fund (CTF) if you opened one before December 2010, or a tax free Junior Isa. The 2016/17 annual limit is £4,080. 

The £100 limit applies to income from gifts from parents only, not other family members.

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