Do children pay tax?

Do children pay tax? Enable’s independent financial advisors can tell you the simple answer is that most don’t but that doesn’t mean they are not liable. There is a bit of a common myth out there that children don't pay tax - that's simply not true. Being under 18 doesn’t mean you’re not liable to pay tax – even babies are liable if they have enough income.  In fact, they're taxed in exactly the same way as adults. Each child can, in the 2014-15 tax year, earn up to £10,000 tax-free from salary, savings or investments. The difference is, unlike most adults, most children don't use up their allowance, so their savings interest is tax-free. Most children don’t have earnings at all let alone ones that exceed 10K so they don’t pay tax.

To make sure your children can earn tax-free or that they don’t pay tax unnecessarily, you  need to  complete form R85 for HMRC when you open an account in their name. Don’t worry if you haven’t done this though, if your child is paying tax for which they are not liable you can reclaim it for them buy using form R40. You should be able to get an R85 direct from your bank or building society, or both forms are available on the  HMRC’s website.

Another area to watch out for with children and the personal allowances is if their savings comes from you. Any interest earned on money specifically given to them by a parent is only tax-free up to the first £100, per parent or step-parent, each year. If your child earns more than £100 in interest the whole lot is taxed at the parent's rate. So as a parent if you are wanting to save at a high level of cash in a child's name, it's definitely worth looking more closely at Junior ISA’s as the interest attached to them is tax-free regardless. You can also add cash to a child trust fund (CTF) if you opened one before December 2010.  For a Junior ISA the 2014-15 annual limit is £4,000. It is interesting to note that the £100 limit applies to income from gifts from parents only, not other family members, so grandparents can save without the same tax implications.  Enable’s IFA’s are happy to talk you through saving for the children.

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE