The £100 Rule: When Your Child's Savings Interest Is Taxed as Yours

If a parent gives money to their own child under 18 and that money produces more than £100 of gross income in a tax year, the income is taxed as the parent's, not the child's. Crucially, once you cross £100 the whole amount is taxed on the parent — not just the excess. The limit is £100 per parent, per child, per tax year, and it only catches parents: gifts from grandparents, aunts, uncles, godparents and family friends are outside it entirely.

Key points

• The £100 rule (formally the parental settlement rule) applies to income from money or assets a parent gave the child, while the child is under 18 and unmarried.
• £100 is a gross figure, measured per parent per child — so two parents can each generate up to £100 before the rule bites.
• Go one penny over and the entire income is treated as the parent's, taxed at the parent's marginal rate.
• Junior ISAs, Child Trust Funds and Premium Bond prizes sit outside the rule.
• 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 for savings + £1,000 Personal Savings Allowance) — so without the £100 rule, almost no child would ever pay tax on interest.

The rule: what it actually says

Children are separate taxpayers with their own Personal Allowance. Left alone, that would make a child's savings account a very efficient place for a higher-rate parent to park cash. The parental settlement rule closes that door.

Where a parent provides funds or assets for their own minor child, any income arising from those funds is treated as the parent's income for tax purposes. There is a small let-out: if the total gross income from that parent's gifts is £100 or less in the tax year, it is left as the child's income.

It is £100 gross, per parent, per child

Three details trip people up:

• Gross, not net. Banks have paid interest without deducting tax since 2016, so the interest credited is the gross figure. For dividends, use the cash dividend received.
• Per parent. Mum's gifts and Dad's gifts are measured separately. Each has their own £100 limit for each child.
• Per child, aggregated. If one parent has funded three different accounts for the same child, you add the income from all of them together and compare the total with £100.

The whole amount is taxed, not just the excess

This is the part that is most often explained wrongly. £100 is not an allowance that shelters the first £100. It is a threshold. Income of £99 is the child's; income of £101 is entirely the parent's. That cliff edge matters most at modest sums, because a few hundred pounds of extra capital can flip several hundred pounds of interest from tax-free to taxable.

What income counts

The rule is not limited to bank interest. It covers income arising from anything the parent gave — savings interest, dividends from gifted shares, interest distributions from funds, and rental income from a gifted property share. It does not cover capital gains: a gain on an asset held for the child remains the child's gain, with the child's own £3,000 annual exempt amount.

It also does not cover money the child earns or receives in their own right — a Saturday job, prize money, or income from assets the child bought with their own earnings.

Parents only: who is and isn't caught

The rule targets parents, including adoptive parents. Everyone else can give as much as they like without dragging the income back onto their own tax return.

Two timing points. The rule stops applying when the child turns 18, or earlier if they marry or enter a civil partnership. And it only applies while the parent is alive and the settlement continues — a gift by will from a deceased parent is not caught.

Step-parents are generally outside the rule, because it refers to a parent of the child.

Worked examples

Example 1: grandparent money, no problem

A grandmother puts £12,000 into an account in her grandson's name. It pays 4% and earns £480 of gross interest in the year.

The £100 rule does not apply, because the money did not come from a parent. The £480 is the child's income. He has no other income, so it is covered many times over by his £12,570 Personal Allowance. Tax due: nil.

Example 2: one parent, just over the line

A father puts £6,000 into a savings account for his 10-year-old daughter. The account pays 4%, producing £240 of gross interest.

1. £240 is more than £100, so the exemption is lost.
2. The full £240 — not £140 — is treated as the father's income.
3. He is a higher-rate taxpayer whose own savings have already used up his £500 Personal Savings Allowance.
4. Tax: £240 × 40% = £96.

Had the account earned £99, the answer would have been nil. That is the cliff edge in action.

Example 3: two parents, staying under

Both parents want to save for the same child. Each opens a separate account and puts in £4,000. Each account pays 2.4%.

• Mother's account: £4,000 × 2.4% = £96 — under £100, so it stays the child's income.
• Father's account: £4,000 × 2.4% = £96 — also under £100.

Total £192 of interest, all treated as the child's, all covered by her Personal Allowance. Tax due: nil. The same £8,000 in a single account would have produced £192 from one parent's gift, breaching the limit and pushing the lot onto that parent's return.

Where the tipping point sits

The capital that triggers the rule depends entirely on the interest rate. At a given gross rate, £100 of interest arises on:

Rates move, so a sum that was comfortably inside the limit one year can breach it the next without anyone adding a penny.

How much tax the parent actually pays

The income is added to the parent's own savings income, so it is sheltered first by whatever is left of their Personal Savings Allowance: £1,000 for a basic-rate taxpayer, £500 for a higher-rate taxpayer and nil for an additional-rate taxpayer. Anything above that is taxed at the parent's marginal savings rate — 20%, 40% or 45%.

In practice, many basic-rate parents with modest savings of their own find the child's interest is absorbed by their unused Personal Savings Allowance and no tax is actually payable. The income still belongs to them for tax purposes; it simply lands in a 0% band. You can test the outcome against your own numbers with the savings interest tax calculator.

Scotland: Scottish income tax rates apply to non-savings income only. Savings interest is taxed at the UK rates, so a Scottish higher-rate parent pays 40% on this interest, not 42%. The Scottish bands still matter, though, because they can affect which UK savings rate applies.

Ways around the £100 rule

There are several perfectly ordinary routes that sit outside the rule altogether.

• Junior ISA. Income and gains inside a Junior ISA are tax-free and the parental settlement rule does not apply, whoever funds it. The annual subscription limit is £9,000. The child gains access at 18.
• Child Trust Fund. Same tax treatment for children who still hold one; these can also be transferred into a Junior ISA.
• Premium Bonds. Prizes are not income, so the rule has nothing to bite on.
• A pension for the child. Contributions can be made on a child's behalf up to the gross non-earner limit, with basic-rate relief added. The money is locked away until much later life.
• Let grandparents and other relatives give. Their gifts are never caught, so directing their generosity into the taxable account and parental money into a Junior ISA is a natural split.
• Keep each parent's gift under the tipping point. Using the table above, size the parental capital so gross interest stays below £100 per parent — and re-check whenever the rate changes.
• Money the child earns. Wages from a part-time job, and anything bought with them, are outside the rule.

What does not work: renaming the account, using a bare trust or a "designated" account, or routing the gift through a grandparent who immediately passes it on. The rule follows the source of the funds, not the label on the paperwork.

How to report it

Banks pay interest gross, so nothing is deducted at source and nothing is reported as the parent's automatically. If the rule applies, the parent needs to include the interest on a Self Assessment return, or tell HMRC so it can be collected through a change to their tax code. If you are not already in Self Assessment and tax is due, you can register for Self Assessment on GOV.UK.

Keep a simple record for each child showing who gave what, when, and how much gross interest each parent's contribution produced. Where one account mixes parental and grandparental money, you apportion the interest between the two sources.

What to do next

Start by working out whether any tax is actually at stake. Run your household savings through the savings tax check to see how much of your Personal Savings Allowance and starting rate band is still free, then use the savings interest tax calculator to put a figure on the tax due once a child's interest is added to your own. In many cases the answer is nil — but it is worth knowing before HMRC asks.