A parent wants to put some of their substantial savings into the names of their children. The children are all under the age of 18. Will the children be taxed on the interest that is earned from those savings?
Children’s income is theirs in their own right, no matter how young they are. They are also entitled to the full personal allowance. However for a child under the age of 18 and unmarried, this does not apply to income that comes directly or indirectly from a parent. Where it has come from the parent it is treated as the parent’s own income with the following exceptions:
- Each parent can give each child sums of money from the total of which the child receives no more than £100 gross income per annum eg interest on bank or building society deposits. If the income exceeds the limit, the whole amount and not just the excess over £100 will be taxed on the parent.
- The National Savings ‘children’s bonds’ for under 16 year olds can be given in addition because the return on such bonds is tax exempt.
- A parent may pay personal pension contributions of up to £3,600 a year on behalf of a child under the age of 18.
- Parents may contribute towards a Child Trust Fund Account for their children.
A child includes a stepchild, an illegitimate child and an adopted child.
For tax purposes income that arises to the child that has come from the parent is treated as a settlement and is taxable on the parent under ITTOIA 2005 s629.