Children's savings

We all want to give our kids the best possible start in life. By starting early and putting aside money for when they’re grown up you can help them realise their ambitions whether its help towards university fees, deposit for a first flat or a first car.

Read our children's savings guide to learn about your options.


Opening a savings account

Opening a savings account for your child is easy. There are lots of banks and building societies out there offering accounts specifically aimed at children. In most cases a child can't have the account in their own name until the age of seven. Until this time a parent or guardian has to be the signatory.

Different providers have different age limits and features so make sure that you check any limits and restrictions before opening an account. Engaging them with money and savings from a young age can be a good way of teaching children the value of money.

There are also Government initiatives such as the Junior ISA and the Child Trust Fund. These fall in to the category of children's savings, but allow tax-free contributions up to £4,128 in the current tax year (2017/2018). Tax rules may change in the future. But at present these types of accounts are some of the most effective ways of savings for your child's future.

Your child's tax free allowance

Most people don’t realise that children have the same personal tax allowance as adults under the age of 65. This is £11,500 a year, for the tax year 2017/2018. The difference is that most adults use up their tax allowance with the first £11,500 of their income.

For children this is obviously rarely the case. So as long as their 'annual income' is less than this threshold then they wouldn't pay tax. For example: £200,000 in a savings account earning 5% per annum interest provides £10,000 income which is below the child's tax threshold.

Tax on money given to children by their parents or relatives

A different rule applies however if a parent or step parent puts money into a child's savings account. In this case, the child can only earn up to £100 interest in a year on that money before they get taxed on it. This rule takes precedence over the one just mentioned as it specifically targets money given to children by their parents regardless of the child’s overall income. Interest over £100 generated by a child's savings that comes from money given to them by each parent will be taxed at the parents' tax rate.

To follow the example above, £2,000 given to a child by a parent earning 5% per annum interest in a savings account generates the cut off amount of income (£100) allowed before tax would have to be paid at the parents' tax rate. The good news is that this rule only applies to parents and step parents, not friends and other family members. So if the child's grandparents, uncles, aunties, gave them money and it was earning interest the £100 limit would not apply.

Making sure it's tax free

To make sure that your child's savings (within the above limits) are automatically paid tax free, contact HMRC for Form R85. Complete this form and give it to the bank or building society that you've opened your child's account with. Once they have this they will exempt the interest on the savings from tax and you will avoid having to claim the tax back.

It’s useful to know that completing a form R85 isn’t necessary for either Child Trust Funds or Junior ISAs. These accounts automatically come under the CTF and JISA tax rules without the need for any additional tax forms.

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions.

Interested in saving for your family's future?

We're an award-winning children's savings and investments provider*.

We offer a selection of simple, affordable ways to invest for your child's future.

All of these products invest in stocks and shares so we want to remind you that their value can fall as well as rise, meaning your child could get back less than was paid in.

*We won the Moneyfacts award for Best Junior ISA Provider in 2015 and 2016. As Family Investments we won the same award in 2012 and 2014.