Savings tax for under-18s — the £100 parental rule

①The starting point: children pay tax like adults

UK tax law makes no special allowance for under-18s. The same allowances and reliefs apply:

• Personal Allowance: £12,570 of income tax-free (2026/27, frozen)
• Personal Savings Allowance (PSA): £1,000 of interest tax-free for basic-rate taxpayers
• Dividend Allowance: £500 of dividends tax-free
• Annual CGT exemption: £3,000 of capital gains tax-free

For a child earning nothing, all of the above apply on top of each other. A child can theoretically earn up to roughly £18,000/yr from a mix of income types tax-free.

②The £100 parental rule explained

If a parent (or step-parent) gives a child cash that is then placed in a savings or investment account, and that account generates more than £100 of interest per parent per year, the entire interest (not just the excess over £100) is treated as the parent's income for tax purposes.

The rule applies per parent, per child, per year across all parental gifts. If you gift cash that ends up in multiple accounts, you have to look at the combined interest.

③Why the rule exists

The £100 rule was designed in the 1990s to stop high-earning parents shifting interest income into their children's names. Without it, a 45%-tax-bracket parent could gift £100k to a baby, earn £4,000+ of interest tax-free in the baby's name, and avoid paying any tax on it.

HMRC sees through this. The rule says: cash gifts from parents that generate interest stay attributable to the parent for tax until the child is 18.

④How to legally sidestep the rule

Three legitimate routes:

1. Junior ISA. All interest in a JISA is tax-free for the child, regardless of who gifted the money. The £100 rule explicitly does not apply.
2. Junior SIPP. Same — the pension wrapper makes all returns tax-protected.
3. Gifts from grandparents (and others). Only the parents’ gifts trigger the rule. Grandparents, aunts, uncles, godparents and family friends can give freely; their interest stays the child's for tax.

So a sensible family strategy:

• Parents fill the JISA first (£9,000/yr) — tax sheltered
• Parents fill the Junior SIPP next (£2,880/yr) — tax sheltered with relief
• Grandparents fund a standard Children's Savings account or NS&I Premium Bonds — £100 rule doesn't apply
• Anyone who wants to save outside a wrapper for the child, in the child's name, should fund their part of it from the grandparent or family-friend side

⑤What to report and to whom

If your child's interest from parental gifts exceeds £100 in a tax year, you (the parent) must include it on your Self Assessment tax return. HMRC doesn't automatically pick this up — the disclosure is your responsibility.

Few parents do this in practice, because:

• Most parents don't know the rule exists
• Most children don't have £2,500+ in interest-bearing savings outside a JISA
• Interest rates were so low (sub-1%) for so long that breaching £100 needed £10,000+ of gifted cash

With Cash JISA rates now at 4–5%, the £2,500 breach point is much lower. Higher-income families with substantial children's savings outside JISAs should review.