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Do children have to pay tax on savings?

Banks and building societies offer savings accounts just for children. Most adult accounts will usually have 20 per cent tax deducted on the interest before it's paid, which is the case for most savings accounts.

However, children, like adults aged under 65 have a Personal Allowance of £8,105 for the tax year 2012-13. This is income they can receive tax-free. As long as their annual income (including interest) is below this amount, they'll be able to:

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• Download the help sheet for Form R85 (PDF, 107K) Opens new window

• Download Form R40 (PDF, 102K) Opens new window

• Download the help sheet for Form R40 (PDF, 59K) Opens new window

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Giving money to your children or investing on their behalf

You can give a child or invest on their behalf as much money as you like. But if you're a parent or step-parent and the money you give your child earns more than £100 interest a year, this interest will be taxed as if it were your own.

The £100 limit only applies to parents and step-parents. Grandparents and other adults who give money to children are not liable to pay the tax if the interest exceeds £100 a year.

• More about giving money to children as a parent or grandparent

Inheritance Tax

If you give money to your children or grandchildren (or to children you care for) Inheritance Tax exemptions may mean that tax does not have to be paid on it. If you die within seven years of giving the money there might be some Inheritance Tax to pay.

Tax-free saving for children

A number of tax-free savings products are available especially for children.

The Child Trust Fund

The Child Trust Fund (CTF) is a long-term tax-free savings account for children born between 1 September 2023 and 2 January 2011. Your child could get an account if:

• you were paid UK Child Benefit for that child for at least one day before 4 January 2024
• your child lives in the UK
• your child is not subject to any immigration restriction

HMRC will send you a voucher to open the account. The voucher could be worth £50 or £250 depending on when your child was born. You can get an extra payment too if for example you're on a low income.

Anybody can put money into the child’s account. From 1 November 2023 there is a limit of £3,600 a year for all contributions. There will be no tax to pay on any interest or gains. Your child will be able to take money out of the account when they reach 18.

• More about the Child Trust Fund

Junior Individual Savings Accounts (ISAs)

Junior ISAs are new long-term tax-free savings accounts for children under 18 who are not entitled to a CTF account. They are available from 1 November 2011.

Unlike CTF accounts there are no government payments into a Junior ISA.

• Junior ISAs

Children's Bonus Bonds from National Savings and Investments (NS&I)

NS&I Children's Bonus Bonds provide tax-free interest for children under 16, with an additional bonus if the money remains untouched for five years.

NS&I bonds are available in 'issues' and each issue has its own rate of return. You can invest between £25 and £3,000 per issue, per child.

Because NS&I Children's Bonus Bonds are offered by NS&I they are backed by the government so your capital will be 100 per cent secure. Application forms are available online or from the Post Office.

• More about Children's Bonus Bonds Opens new window

Other tax-free savings

Parents and grandparents can also use other tax-free savings products which are available to adults on the behalf of children. As these are not specifically designed for children in some cases you will have to manage the account until the child reaches a certain age.

Index-linked Savings Certificates (NS&I)

You can invest from £100 to £15,000 for three or five years in Index-linked Savings Certificates. The value of the investment is guaranteed to stay ahead of inflation when held for at least a year.

The returns are free from UK Income Tax and Capital Gains Tax. Certificates can be cashed in early but no interest or index-linking are paid if cashed in within the first year.

Children under seven need someone else to purchase the Certificates on their behalf.

• More about Index-linked Savings Certificates Opens new window

Premium Bonds (NS&I)

An individual, including a child, can own between £100 and £30,000 worth of Premium Bonds. Interest is not paid on Premium Bonds, but each Bond number is entered in a prize draw every month and prizes are tax-free.

Parents, grandparents and great-grandparents can purchase Premium Bonds for a child, but a parent or guardian must hold the Bond on the child's behalf until they reach 16.

• More about Premium Bonds Opens new window

Individual Savings Accounts (ISAs)

When a child reaches 16 years old they can open a tax-free cash ISA, as long as they live in the UK. The minimum age for a stocks and shares ISA is 18.

• Find out about investing in an ISA for your child

What happens when a child turns 16?

When a child turns 16:

More useful links

• More about bank and building society interest Opens new window

• National Savings & Investments - more information Opens new window

• Savings options for young people (young people section)

Useful contacts

• Money, tax and benefits contacts