Children’s accounts, apart from Junior ISAs, are not tax free. It’s a common misconception that children don’t need to pay tax on their savings, but they do – just like adults.
Children may have a Personal Savings Allowance. The first £1,000 of overall savings income earned by basic rate taxpayers will be free from income tax, the first £500 for higher rate taxpayers, and there is no allowance for additional rate taxpayers. Depending on personal circ*mstances, you may need to pay tax on the interest earned and it will be your responsibility to pay any tax owed to HM Revenue & Customs (HMRC).
If a parent (including civil partner and stepparent) gifts money to their child and the interest from it is more than £100 a year, then that interest counts towards the parent’s personal savings allowance. It may be taxable depending on the parent’s personal circ*mstances.
This also applies if the interest on the gift, added to any interest we’ve already paid, makes a gross interest payment of over £100. This £100 threshold applies to each parent individually. All accounts a parent holds for the child (regardless of whether they are held with the same bank or building society) are considered. The £100 rule does not apply to parental contributions to a Junior ISA.
