Question:

I want to put some of my substantial savings into the names
of my children. The children are all under the age of 18. Will the children be
taxed on the interest that is earned from those savings?

Answer:

Children’s income is theirs in their own right, no matter
how young they are. They are also
entitled to the full personal allowance. However for a child under the age of
18 and unmarried, this does not apply to income that comes directly or
indirectly from a parent. Where it has come from the parent it is treated as
the parent’s own income with the following exceptions:

1. Each parent can
give each child sums of money from the total of which the child receives no
more than £100 gross income per annum eg interest on bank or building society
deposits. If the income exceeds the limit, the whole amount and not just the
excess over £100 will be taxed on the parent.

2. The National
Savings ‘children’s bonds’ for under 16 year olds can be given in addition
because the return on such bonds is tax exempt.

3. A parent may pay personal pension
contributions of up to £3,600 a year on behalf of a child under the age of 18.

4. Parents may
contribute towards a Child Trust Fund Account for their children.

A child includes a stepchild, an illegitimate child and an
adopted child.

For tax purposes income that arises to the child that has
come from the parent is treated as a settlement and is taxable on the parent
under ITTOIA 2005 s629.