Do parents pay tax on their children’s savings?

If you're a parent and want to put some money into your child's savings account, there are some strict rules in place to stop you using their tax-free allowances as a way of cutting down your own tax bill.

If the interest on the savings you put into your child's savings account exceeds £100 a year before tax (or £200 if both parents give money), all of this interest (not just the amount over £100) will be added to your savings income and taxed as if it were your own.

The £100 limit applies to income from gifts from parents, stepparents, or guardians only - not other family members, such as grandparents, or friends.

Income from tax free investments such as Junior ISAs does not count towards the £100 limit though.

Another commonly asked “strategy” is whether it is worthwhile gifting shares in family companies to children who are under 18 and then paying dividends on the gifted shares. The aim is to take advantage of the annual tax-free dividends allowance and the possible lower rates of tax payable by the children.

This strategy is unlikely to work however, as HMRC would seek to treat the dividends as if they had been received by their parent(s).

Please contact us if you would like some advice on this subject.