Children’s income is theirs, but…
For taxation purposes a child’s income (where children refers to stepchildren, illegitimate and adopted children) is theirs regardless of their age. In addition they benefit from a full personal tax allowance and are subject to all of the normal tax bands and rates.
Here comes the “but”.
For unmarried children under the age of 18 income that comes directly or indirectly from a parent is treated as the parent’s own income, and tax is applied appropriate to that parent. That means just “splashing the cash” on your offspring may have some unpleasant tax consequences
Fortunately there are some exceptions to the rule that you can take advantage of including;
- Each parent can give monetary gifts to each child and provided any income generated from the gift is less than £100 for each child from each parent, then the income is taxed as the child’s. If the income (interest from bank accounts for instance) exceeds £100, the whole amount and not just the excess over £100 will be taxed on the parent.
- The return on National Savings ‘children’s bonds’ for under 16 year olds is tax exempt.
- Personal pension contributions of up to £3,600 a year on behalf of a child are allowable.
- Child Trust Fund Accounts can be established by parents for their children.
Interestingly grandparents aren’t treated as strictly as parents where it comes to helping out the children. So it might be worth a few conversations.
If you want to understand more about the tax implications of giving money to your children, why not talk to Lewis Smith & Co.?
Lewis Smith & Co. – Expert tax planning in Dudley