Could you be taxed on your children’s savings?

child putting coins into piggy bank

80% of parents are unaware that they could be taxed on their children’s savings. Here’s how the rules work, and how you could mitigate the chance of a tax bill.

It is highly likely that at some point, you have started (or considered starting) a nest egg for your children.

You might have done this through property, trusts, a Junior ISA (JISA), a pension scheme, or a cash savings account – in any case, building wealth for the next generation is a priority for many parents around the UK.

However, it is essential to remember that you could be taxed on your child’s savings – or, more specifically, on the interest their savings earn.

This is especially important in 2024, as interest rates have been gradually pushed up since December 2021. The Bank of England (BoE) base rate stands at 5.25% as of 9 April 2024, and

Keep reading to discover the rules around tax on a child’s savings, plus the potential tax benefits of including your children’s wealth in your financial planning journey.

Only 20% of parents understand the rules about tax on children’s savings

A study conducted by AJ Bell, published in February 2024, found that only one-fifth of parents know that they could be required to pay Income Tax on their child’s savings.

Here’s how the rules work:

  • If the interest on your child’s savings surpasses £100, all of the interest may be counted as belonging to the contributor if they are the child’s parent.
  • As a result, the interest on your child’s savings would count towards your annual Personal Savings Allowance (PSA) once it goes above £100.
  • The PSA stands at £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and does not exist for additional-rate taxpayers. It is the amount you can earn in savings interest before the interest counts towards your Income Tax liability.
  • If you have already used up your PSA within that tax year (or you do not have one), and your child’s savings interest reaches £100, this amount may be added to your Income Tax bill.

If your child received a 5% annual interest rate on their savings, you would only have to contribute £2,000 for the interest to be added to your PSA.

Fortunately, there are ways to reduce your chances of receiving an unwanted Income Tax bill on your child’s savings interest. Let’s examine three of these avenues in closer detail.

3 ways to mitigate an Income Tax bill on your child’s savings

  1. Ask the whole family to chip in

It’s important to remember that your PSA is an individual allowance, and the tax on children’s savings applies directly to the person making the contribution. The rate of Income Tax the contributor may need to pay will be set at their marginal rate.

So, if you and your spouse make equal contributions into your child’s savings account, you could essentially double the amount of tax-free interest they can earn.

Plus, the tax-free £100 interest limit only applies to the child’s parents. If grandparents, aunts and uncles pay into your child’s savings, they won’t see the interest brought against their PSA.

Making tactical contributions as a family could help to ensure the interest on a little one’s savings remains tax-efficient where possible.

  1. Use a JISA

Opening a JISA for your child could be a more tax-efficient solution than paying into a regular savings account.

Any returns you see within a JISA are not subject to either Income Tax or Capital Gains Tax (CGT), meaning that no matter how much your child’s nest egg grows, you won’t be taxed on the yield.

If you plan to place more than the annual contribution limit into a JISA for your child (standing at £9,000 in the 2024/25 tax year), you could still maximise the available JISA savings before paying the excess into another account.

That way, it’s less likely that the interest on your child’s non-JISA savings will surpass £100 and become part of your PSA.

  1. Consider family financial planning

Working with a financial planner could be ideal if you’re planning to transfer wealth to the next generation using a range of tax-efficient avenues.

Family financial planning involves:

  • Bringing your spouse and children into your financial plan
  • Creating a wealth transfer strategy that takes your and your children’s goals into account
  • Looking at tax-efficient options that could be suitable within your desired time frame
  • Gaining peace of mind that your assets are in safe, professional hands.

If you’re looking to build a nest egg that your children can benefit from in the future, your Kellands financial planner can help to facilitate this goal.

To discuss your family financial planning needs with a qualified expert, email us at, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.



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