Does a Child Have a Personal Tax Allowance? Savings and Gifts

Yes. A child in the UK has a personal tax allowance, and it is the same as an adult’s: £12,570 of income before any income tax is owed in 2026/27.¹ For a child whose income is all from savings, extra allowances stack on top, so tax-free interest can reach £18,570. The catch is a rule that reassigns interest on parental gifts back to the parent once it exceeds £100 a year.

The Allowance Starts at Birth

The UK treats every person as a separate taxpayer from day one. A newborn has the full £12,570 personal allowance, the same as any working adult.¹ The figure has been frozen at that level since 2021/22 and is legislated to stay there through at least 2027/28.

The allowance covers everything the child earns or receives: wages from a Saturday job, interest on a savings account, dividends from shares held in the child’s name, rental income from property. If total income from all sources stays under £12,570, no income tax is due.

Most working children never come close. A teenager earning £7 an hour for ten hours a week during term time takes home around £3,640 a year, well inside the allowance. The employer runs PAYE as normal. If an emergency tax code causes tax to be deducted anyway, it can be reclaimed after the tax year ends using the P45 or P60 as proof of earnings.

Savings Interest: Why the Tax-Free Ceiling Is Higher

For savings income specifically, two more allowances sit on top of the personal allowance. Because most children have little or no employment income, both usually apply in full.

The starting rate for savings taxes up to £5,000 of interest at zero percent. This band shrinks by £1 for every £1 of non-savings income above the personal allowance, so a child with no wages keeps the full £5,000.²

The Personal Savings Allowance adds another £1,000 of tax-free interest for anyone in the basic rate band (£500 for higher rate). A child with modest income qualifies for the full £1,000.²

Stacked together, a child with no other income can receive up to £18,570 of savings interest tax-free: £12,570 personal allowance, £5,000 starting rate, £1,000 Personal Savings Allowance. Very few children reach that ceiling.

Since April 2016, banks and building societies pay interest gross. Nothing is deducted at source, so in most cases a child’s interest simply arrives untaxed and no further action is needed.³ The old registration form to receive interest without tax deducted was scrapped at the same time.

The £100 Rule on Money Given by Parents

The child’s allowance is real, but there is a specific limit on how far a parent can use it. If cash or assets given by a parent or step-parent produce more than £100 of income in a tax year, the whole of that income is treated as the parent’s, not the child’s. Not just the amount over £100 — every pound of it goes on the parent’s tax return and is taxed at the parent’s rate.⁴

The underlying statute treats a gift from a parent to a minor child as a “settlement” and attributes the income back to the parent who made it.⁵ It applies to interest and dividends alike.

The £100 threshold is per parent. If each parent separately gives money that generates £90 of interest, neither breaches it. If one parent’s gifts throw off £110, that parent reports the full £110.

With savings rates where they are, the limit is easier to trip than parents expect. £2,500 in an account paying 4% produces exactly £100 in a year. Anything above that tips over.

Gifts From Grandparents and Others Are Different

The £100 rule catches parents and step-parents only. Interest on money given by grandparents, aunts, uncles, godparents, or family friends counts as the child’s own income and is measured against the child’s personal allowance in the ordinary way.⁵ That makes gifts from grandparents a far more tax-efficient way of building up a lump sum in a child’s name.

Accounts Where the £100 Rule Does Not Apply

Some accounts sit entirely outside the normal tax rules. Income inside them is not taxed at all and is ignored for the £100 parental gift test.

Junior ISAs and Child Trust Funds

A Junior ISA can hold cash (interest grows tax-free) or stocks and shares (investment gains and dividends are tax-free). No income tax or capital gains tax applies to anything earned inside the account.⁶⁷

Anyone can pay in, and parental contributions do not trip the £100 rule. From a pure tax perspective, this is the best place for a parent to save on behalf of a child. The trade-off is access: the money is locked in until the child turns 18, when they take full control. From 16 the child can manage the account, but withdrawals still wait until 18.⁶ A child who holds both a Junior ISA and a Child Trust Fund shares a single £9,000 annual limit across the two.

NS&I Premium Bonds

Premium Bonds bought for a child produce prizes that are free from both income tax and capital gains tax.⁸ The maximum holding is £50,000. Because the prizes are tax-free, they do not count toward the £100 parental gift limit or toward the child’s personal allowance. Unlike a Junior ISA, the parent or guardian managing the bonds can cash them in at any point.

When a Child Needs a Tax Return

Most children never file one. Self Assessment triggers apply the same way whatever the taxpayer’s age, and the ones most likely to catch a child are:

Self-employment income above the £1,000 trading allowance, such as a small online craft business.
Total gross interest from savings and investments (outside ISAs) of £10,000 or more.
Any untaxed income above £2,500.
Capital gains above the annual exempt amount, which for 2026/27 is £3,000.⁹

A parent or guardian completes the return for a child too young to handle it. The online deadline is 31 January after the end of the tax year, and missing it triggers an automatic £100 penalty even if no tax is due.¹⁰

Where tax has been deducted at source on savings or investments and no return is required, the R40 form is used to reclaim it, provided gross income from savings and investments is £10,000 or less.¹¹ Claims can go back four tax years.

1
GOV.UK. Income Tax Rates and Personal Allowances
2
GOV.UK. Tax on Savings Interest – How Much Tax You Pay
3
UK Parliament. Chapter 2 – The Taxation of Savings Income
4
GOV.UK. Interest on Savings for Children
5
Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005 – Section 629
6
GOV.UK. Junior Individual Savings Accounts
7
GOV.UK. Child Trust Fund – Overview
8
NS&I. Premium Bonds
9
GOV.UK. Capital Gains Tax – What You Pay It On, Rates and Allowances
10
GOV.UK. Self Assessment Tax Returns – Deadlines
11
GOV.UK. Claim a Refund if You’ve Paid Tax on Your Savings and Investments