Tax on children's savings and the £100 rule

Most children pay no tax on their savings at all. A child has the same income tax allowances as an adult, and a child with no other income can receive as much as £18,570 from savings without paying tax, because their personal allowance and the savings allowances sit on top of each other¹. Interest on savings is usually paid gross, which means no tax is deducted before the money arrives².

The catch is the £100 rule. If you are a parent or step-parent and money you have given your child earns more than £100 in interest in a tax year, that interest is taxed as yours, not the child's, at your own tax rate¹. The limit is £100 of gross interest for each parent, so £200 where both parents have given money³. The rule exists to stop parents parking large sums in a child's name to use the child's unused allowances.

How children's savings are taxed

Children are liable to pay tax on savings in the same way adults are, because they have the same income tax allowance³. In practice most children never face a bill. A child's income is made up of whatever interest their accounts pay, plus any other income such as part-time earnings, and tax is only due once that income passes the available allowances.

For a child with no other income, the allowances stack up to a generous ceiling: they can receive as much as £18,570 from savings without paying tax¹. That figure is not a special children's allowance but the result of the standard personal allowance plus the starting rate for savings and the personal savings allowance being applied to a child who has no wages or other income to use them up first. The dedicated guides to how tax on savings interest works, the personal savings allowance and the starting rate for savings explain how these layers fit together for adults, and the same mechanics apply to a child.

Interest is normally paid gross, with nothing taken off before it lands in the account². So a child's savings do not have tax deducted at source; the question is simply whether the total interest is high enough for a bill to arise, and for money given by parents, whether the £100 rule passes the interest back to you. To see how interest builds up, if you have £100 saved and your interest rate is 3.5%, you receive a total of £3.50 in interest over the course of a year⁶. The guide to compound interest shows how this works on larger balances over several years.

The £100 rule: £100 a year in interest from a parent's money

The £100 rule applies to savings given to a child by a parent or step-parent. Interest on that money is taxed at the parent's tax rate, whether basic, higher or additional, if it exceeds £100 a year¹. The threshold is measured on gross interest, before any tax³.

The limit belongs to each parent separately. If only one parent has given money, the test is whether the interest on that parent's gifts passes £100. If both parents give money, the limit is £200, because each parent's £100 is counted against their own gifts³. Step-parents are caught by the same rule as parents¹.

What the rule does not do is tax only the excess. The test is a cliff edge: if the interest on the savings you put into your child's savings account exceeds £100 a year before tax, all of this interest, not just the amount over £100, is added to your savings income and taxed as if it were your own³. A parent who is a basic rate taxpayer and whose gifts earn £150 of interest does not pay tax on £50; the full £150 is added to their income.

The rule applies only to money that generates interest, in ordinary savings accounts. It does not apply to money in a Junior ISA or Child Trust Fund, which are tax-free wrappers⁵. It also does not apply to gifts from anyone other than a parent or step-parent, which is covered below.

When parental gifts earn more than £100, all the interest counts

Once the £100 threshold is passed, the whole of the interest on your gifts is treated as your income for the tax year. It is added to your other savings income and taxed at your usual rate of income tax, after your own allowances are applied⁷. A higher or additional rate parent therefore pays more tax on the same interest than a basic rate parent would.

Because the interest is paid gross, nothing is deducted at source². If the interest pushes your total savings income above your own allowances, you pay tax on any interest over your allowance at your usual rate of income tax⁷. HMRC usually collects this through your tax code if you are employed or get a pension, or by a Simple Assessment letter if you do not have a tax code that can be changed⁷.

The practical difficulty is that the interest is not predictable in the way a wage is. Rates change, balances grow as you add money, and a year's interest can creep over £100 late in the tax year. Since the whole amount is at stake, not just the overshoot, a parent whose gifts earn £105 loses the tax-free treatment on all £105. Keeping a note of how much you have given, and checking the interest the account has paid at intervals through the year, is what keeps the rule manageable.

Money from grandparents and others is outside the £100 rule

The £100 rule applies only to parents and step-parents¹. Interest on money given by grandparents, other relatives, family friends or anyone else counts as the child's own income, and the child's own allowances, up to that £18,570 ceiling for a child with no other income, apply¹. A grandparent can therefore give substantial sums without the interest being taxed as theirs, which is one reason grandparents are often the main givers into a child's savings.

Grandparents' gifts are not entirely free of tax considerations, but the tax that can arise is inheritance tax, not income tax, and it falls on the giver's estate rather than the child. Gifts made within seven years of a death are deducted from the estate's basic threshold when working out inheritance tax, and if the gifts exceed that threshold there will be inheritance tax to pay on them⁸. The rate depends on how long the giver lived after making the gift: 40% where the death came 0 to 3 years after the gift, tapering to 16% where it came 5 to 6 years after⁹.

Some gifts never enter that calculation at all. You can make smaller gifts of up to £250 to any number of people, and you can give £5,000 to your child for their wedding, free of inheritance tax¹⁰. Separate individual gifts of up to £250 are also allowed¹¹. The same inheritance tax point applies to parents too: a parent who gives a deposit for a house might create an inheritance tax charge if they die within seven years of handing over the money¹¹, quite separately from the income tax £100 rule.

Tax-free accounts: interest free from income tax and capital gains tax

The cleanest way round the £100 rule is to put money into an account that is tax-free in its own right. With an ISA, any returns earned are free from UK income tax and capital gains tax¹². ISAs are tax exempt accounts under which income received in the form of interest, dividends or gains attracts no tax¹³. Because the interest never counts as anyone's taxable income, the £100 rule has nothing to bite on.

For children the main tax-free accounts are the Junior ISA and the Child Trust Fund. Junior ISAs are tax-free savings accounts that let you invest up to £9,000 a year for a child under 18¹². NS&I, which offers a Junior ISA, states that the interest earned is tax-free and does not count towards the child's Personal Savings Allowance⁵. A Child Trust Fund is a tax-free savings account created by the government for children born between 1 September 2002 and later dates, and you can continue to add up to £9,000 a year to one¹⁴.

The tax exemption is written into the Child Trust Fund regulations: no tax is chargeable on the account provider or its nominee, or on the named child or registered contact, in respect of interest, dividends, distributions or gains on the account's investments, provided the regulations are complied with¹⁵. The same regulations allow an account provider to make tax claims and conduct appeals on behalf of the named child¹⁵.

Money in a Junior ISA or Child Trust Fund therefore behaves differently from money in an ordinary children's account, whichever relative gives it. The trade-off is access: the child's money in these accounts is locked in until the child is 18, unlike an easy access account or other children's savings accounts. The guides to children's savings accounts and ISAs cover the account types in full.

Why the parent pays the tax, not the child

The £100 rule is an anti-avoidance measure. Its purpose is to stop parents using a child's unused tax allowances to shelter their own savings, so the law treats the interest as the parent's income and taxes it at the parent's rate, whether basic, higher or additional¹. The child does not pay it, and the child's own allowances are not used up by it: the interest is simply added to the parent's savings income and taxed as if it were the parent's own³.

In practice the mechanics run through the parent's tax affairs. Interest is paid gross², so nothing is collected at source. If the added interest takes the parent over their own savings allowances, tax is due on any interest over the allowance at the parent's usual rate⁷. For an employed parent or one getting a pension, HMRC usually collects this through the tax code, adding an estimated amount for the current tax year based on what the bank or building society reported for the previous one⁷. Where there is no tax code to adjust, HMRC may send a Simple Assessment letter instead⁷.

This is also why the rule can catch parents who did not realise it applied. A parent who is a non-taxpayer, or whose own savings interest sits within their personal savings allowance, may owe nothing even after the £100 threshold is passed, because their own allowances absorb the interest first. A higher rate taxpayer with large savings, by contrast, pays at their marginal rate on the whole amount. The guide to tax on savings interest explains how the allowances are applied.

Keeping gifts under the limit: the options side by side

A parent who wants to give money without triggering the rule has several routes, and they differ in cost, access and what happens on death.

• Use a Junior ISA or Child Trust Fund. Up to £9,000 a year can go in, the interest is tax-free and outside the £100 rule entirely⁵, and the limit is unchanged until April 2031⁴. The money is the child's and locked in until they are 18.
• Keep parental gifts small enough that interest stays under £100. The test is on interest, not the gift itself, so the amount a parent can give depends on the rate the account pays. At 3.5%, £100 saved earns £3.50 over a year⁶, which shows how the interest scales with the balance.
• Let grandparents and others give instead. Their gifts generate interest that counts as the child's income, with the child's own allowances available¹. Small gifts of up to £250 per person are also exempt from inheritance tax¹¹.
• Spread gifts between parents. Each parent has their own £100, giving £200 before the rule bites where both give money³. Each parent's gifts are counted separately, so record-keeping matters.
• Give on a wedding. A gift of £5,000 to your child for their wedding is free of inheritance tax¹⁰, though as a parent's gift its interest still falls under the £100 rule if it sits in an ordinary account.

Where inheritance tax is a live consideration, the timing of any gift matters: gifts within seven years of death are deducted from the estate's threshold⁸, with the charge tapering from 40% for gifts made 0 to 3 years before death to 16% for those made 5 to 6 years before⁹. The inheritance tax rules and the estate pages cover this in more depth.

Changes to ISA allowances and the Junior ISA limit

Two changes to the ISA rules are on the way, and families saving for children should know how each one lands.

The Junior ISA and Child Trust Fund subscription limit is not changing: it will remain at £9,000 until April 2031⁴. Money paid into a child's Junior ISA is therefore unaffected by the reforms below.

The adult cash ISA allowance is being cut. From 6 April 2027, the annual cash ISA subscription limit will be reduced to £12,000 for individuals aged under 65, an amendment to the Individual Savings Account Regulations 1998¹⁶. The measure applies only to the cash ISA limit for under 65s; the overall ISA framework is otherwise unchanged by this measure¹⁷. At present, you can split your £20,000 ISA allowance across multiple types of ISA, but the rules are changing from 6 April 2027¹⁸. This matters for parents who hold their own savings in cash ISAs, since the room to shelter parental savings shrinks from that date, while a child's Junior ISA allowance does not.

Separately, savings tax rates themselves are being amended. Legislation has amended sections of the Income Tax Act 2007 to set the starting rate for savings¹⁹, and the Individual Savings Account and Child Trust Funds (Amendment) Regulations 2025 updated the rules on withdrawals of a current year subscription from a flexible ISA, with those changes taking effect from 15 July 2025²⁰. The guide to cash ISAs versus ordinary savings explains how the tax-free wrapper compares with using your allowances.

Children's savings and benefits

A child's savings can interact with the benefits system in two directions: the savings themselves can affect means-tested support, and the interest they generate can affect the parent's income for certain charges.

For some support, a child's savings are looked at directly. Under the Scottish Welfare Fund guidance, savings for a child or young person who is looked after, whether held in a Junior ISA or another account, should normally be ignored when calculating savings²¹. Rules of this kind vary by scheme, so the guide to how savings affect benefits is the place to check how a particular benefit treats a child's account.

In the other direction, savings interest counts towards a parent's income for the High Income Child Benefit Charge. Your adjusted net income is your total taxable income, which includes savings interest and dividends, calculated before any personal allowances and less certain tax reliefs such as pension contributions and Gift Aid²². From the tax year 2024 to 2025 onwards, the charge is 1% of Child Benefit for every £200 earned over the threshold²². Interest from a child's account that has been attributed to a parent under the £100 rule would form part of that parent's income.

Child Benefit itself carries reporting duties around the child rather than the savings. Parents must tell HMRC straight away if a young person's plans change, for example leaving education or starting a paid apprenticeship, to avoid being overpaid²³, and HMRC should be told if a child dies²⁴. These duties sit alongside the tax rules rather than being caused by them, but a family managing a child's savings will often be receiving Child Benefit at the same time.

Getting help with tax on a child's savings

For most families nothing needs to be reported. After the end of the tax year, your bank or building society tells HMRC how much interest you earned, and where the interest is £10,000 or less this reporting alone is normally enough⁷. If your bank or building society tells HMRC that you have more than £10,000 in savings interest, HMRC will send you a notice to file a Self Assessment tax return, and you need to tell HMRC how much interest you earned on that return⁷. People already registered for Self Assessment report any interest earned on savings there⁷.

Where tax is due, the collection is usually automatic: through your tax code if you are employed or get a pension, or by Simple Assessment letter if you do not have a tax code or it cannot be changed⁷. One deadline is worth knowing: if you have tax to pay on your savings interest and do not get a letter by 31 March of the following tax year, you must contact HMRC⁷.

If tax has been overpaid, for example under the old system where tax was deducted from a child's interest, you can reclaim it for them by completing form R40 and sending it to HMRC³. The guide to reclaiming tax paid on savings interest walks through the process. For Scottish taxpayers, whose income tax bands differ, the guide to tax on savings interest in Scotland covers the differences. General questions about allowances and rates are covered in the personal tax section.