Last updated: 14 October 2026
Is interest on a child’s savings taxed, and does it matter who gave the money?
Children have their own Personal Allowance of £12,570 and the £5,000 starting rate for savings, so interest on their savings is usually tax-free. The exception is money given by a parent. If a parent’s gift produces more than £100 of income a year for the child, all of that income is taxed as the parent’s. Money from grandparents, other relatives or an inheritance isn’t caught by this rule, and Junior ISAs are exempt.
The £100 parental rule
| Source of the money | Interest taxed on |
| Gift from a parent, income £100 or less a year | The child (usually tax-free) |
| Gift from a parent, income over £100 a year | The parent, in full |
| Gift from a grandparent or other relative | The child |
| Inheritance from a grandparent | The child |
| Junior ISA, from anyone | Tax-free |
| Child Trust Fund | Tax-free |
The £100 limit applies per parent, per child. Both parents can each give enough to produce £100 of income.
Example
Tom gives his daughter £8,000 and it’s put into a savings account at 4%. The interest is £320 a year, which is over £100, so the whole £320 is taxed as Tom’s. If he’s a higher-rate taxpayer and has used his £500 Personal Savings Allowance, he pays 40% on it. If her grandmother had given the same £8,000, the £320 would be taxed as the child’s and covered by her Personal Allowance.
Inheritance
Money a child inherits from a grandparent’s will is the child’s own, so interest on it is taxed as theirs. If a parent inherits money and then passes it to the child, it’s a parental gift, so the £100 rule applies. A deed of variation redirecting an inheritance straight from the estate to the child may still be treated as coming from the parent for this purpose.
Junior ISAs
In 2026/27, up to £9,000 a year can be paid into a Junior ISA. Interest and growth are tax-free, wherever the money came from. The child can take the money at 18.
Bare trusts
Money held for a child in a bare trust is the child’s for most purposes. But if a parent funded the trust, the parental settlement rule applies to income over £100.
Pensions for children
Parents can pay up to £2,880 a year into a child’s pension, and the government adds tax relief to make it £3,600. Income within the pension is tax-free, but the money is locked away until the child’s minimum pension age.
Keeping records
Keep a note of who gave each sum and when. This helps show HMRC whether a parental gift or a gift from someone else funded each account.
Parents in the same household
The rule looks at who provided the money, not whose name is on the account. Moving money through a grandparent, or opening the account in a sibling’s name, doesn’t change who the true giver is.
Frequently asked questions
Does a child need to file a tax return?
Rarely, only if their income exceeds allowances or tax is due.
Can a child reclaim tax deducted?
Yes, using form R40.
Does the rule apply after 18?
No, it ends at 18 or on marriage.
Are Premium Bonds affected?
No, prizes are tax-free.
Related: gifting inherited money to children and gifting money to reduce Inheritance Tax.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with tax on children’s savings. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
