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Interest on children’s savings

13 June 2024

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).

In the UK, children have a personal allowance of £12,570. Parents gifting large sums to their children resulting in annual bank interest over £100 (before tax) are liable to pay tax on the interest exceeding their Personal Savings Allowance (PSA). This is to prevent parents from exploiting a child’s personal allowance.

The PSA permits basic-rate taxpayers to earn up to £1,000 interest on savings income tax-free, £500 for higher-rate taxpayers. Additional rate taxpayers do not benefit from the PSA.

The £100 limit doesn’t apply to money gifted by grandparents, relatives, or friends. Income from Junior ISAs or CTFs is tax-exempt, even when the funds originated from the child’s parents. The 2024-25 subscription limit for both is £9,000.

Employed older children can earn income as wages under standard employment rules.

Additionally, the Child Trust Fund (CTF) scheme was introduced to encourage savings habits in children, providing them with a fund when they turn 18. Parents or guardians received a voucher to open a CTF account. If they didn’t, HMRC may have opened one. From 16, children can manage their CTF account. They can move their money into an ISA or another type of savings or investment account. Up to £9,000 a year can be added to a CTF account. The money belongs to the child and can only be withdrawn at 18. There’s no tax on the CTF income or profit.

It’s worth noting that the CTF scheme has been a significant step towards fostering a culture of saving among the younger generation. Also, the tax exemptions associated with Junior ISAs and CTFs make them an attractive option for parents looking to secure their children’s financial future.

Source: HM Revenue & Customs Tue, 11 Jun 2024 00:00:00 +0100

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