Interest on Children's savings account

I understand that if a child earns more than £100 in interest (in his/her bank savings account) in a single tax year from money given to them by a parent, that should be declared to HM Revenue and Customs. I would like to ask whether the interest arising from the money given by a parent counts on cumulative basis or tax year basis? For example in 2023-24, a parent (Father) deposited £2000 into his child bank account, it earns £80 (assumed 4% interest rate), my understanding is no tax reporting is needed as it is below £100. If, in tax year 2024-25, the father further deposited £1000 into his child bank account, and by the end of 2024-25, the child earned £120 interest (the total bank balance is £3000 i.e. £2000 in 2023/24 and £1000 in 2024/25), does the father need to report £120 interest in tax year 2024/25? Or it only counts on the money deposited into the child in the tax year 2024/25 (i.e. £1000), which earns £40 interest only, and need not be reported to HMRC.

Hi Nella,
Please have a look at the guidance here
Interest on savings for children
It advises that the parent will have to pay tax on the childs interest if the child's interest is more than £100 and it takes the parent over their personal savings allowance.
This rule is applied on a tax year basis, each year.
Thank you. 

I read the guidance. It counts on a tax year basis, each year, for interest amount earned from money given by a parent. Please further clarify that if during the year, I only gave £1000 into children which earns only £40 interest for that amount, and the children has an opening bank balance of £5000, which cumulated from past years from parents and earns £200 during the year, does it mean that the total interest £240 has to be taxed for the year or since, on tax year basis, only £1000 was injected, which earned £40 for that year, no tax is needed?

Hi,

As all the funds have been given by parents, it is the total amount of interest that is taken into account, so in this case it is the £240 that is taxable and the parent(s) wll need to show this as part of their own income.

Thank you.

I would like to ask what if the money is deposited from various sources such as parents, grandparents, relatives and friends over the past years. The fund would be mixed in the children bank account. When there is a withdrawal, it is impossible to know whether the withdrawal comes from parents, grandparents, relative or friends. Thus, when there is interest accrued in the children bank account during a tax year, say £300, how do we know whether it is related to the funds from parents, grandparents or others, and reported for tax accordingly? Please explain.

Hi Nella,
It does not matter who deposited the capital into the account, once it is in the account, it generates interest in the childs name and it is this interest that is taxable.
Thank you. 

So, no matter who deposited into the children account, once interest is generated (over £100) in the bank account, it has to be taxed. Given the mixed funds, is it that either parents (father or mother) can file the interest in children bank account in his/her tax reporting?

Hi,
It is interest based on the parents depositing the money:
Interest on savings for children
Thank you.

Hi Admin, Thanks for your response. Can you please elaborate on the original question of understanding the split between parent gifts money and grand parents gifts money. You state the interest (over £200 per couple) from a parent's gift is calculated against the parent's tax obligation. That link also states "The £100 limit doesn’t apply to money: given by grandparents, relatives or friends in a Junior ISA or Child Trust Fund" How do we show this split between gifts? Do we track the gifts forevermore and show a simple split on the interest? Or is it recommended to have 2 accounts, one for gifts from a parent and one for gifts from others? Thanks.

Hi
It is up to you to work out the proportions, so that the correct amount is declared for tax purposes.