Putting some money aside for children or grandchildren sounds pretty straightforward. And often it is.
Then someone asks a question like: Does it make any difference for tax purposes whether the money comes from a parent or a grandparent?
It’s the kind of question that comes up in conversations with our clients.
So, we asked Director Kevin Taylor, our tax specialist, to explain one of the rules families can easily be unaware of; the £100 rule and where a Junior ISA might fit into the picture.
Kevin Taylor - Director
The £100 rule – what does it actually mean?
The £100 rule is not a limit on how much capital parents can give their children, it is a limit on how much income it produces.
If a parent gives money to their unmarried minor child and that money generates more than £100 of interest or other income in a tax year, the income is usually treated as the parent's for tax purposes.
The £100 threshold applies to each parent, for each child. If the income goes over £100, it is the full amount of income that can be treated as the parent's for tax purposes, rather than just the amount above £100.
For example, if a parent gives their child £10,000 and it produces £500 of interest, the £500 interest is likely to be taxable on the parent.
What if grandparents give the money?
The good news is that the £100 parental gift rule doesn't generally apply to gifts from grandparents.
Interest generated by money genuinely gifted by a grandparent is normally treated as the child's income, subject to the child's own tax allowances.
Grandparents should, however, consider Inheritance Tax implications where larger gifts are involved.
Could a Junior ISA be the answer?
For families looking to save for a child's future, a Junior ISA (JISA) can be worth considering.
Up to £9,000 can be paid into a JISA in the 2026/27 tax year, and the income and investment gains are tax-free. Parents, grandparents and other family members can all contribute.
The money belongs to the child and becomes accessible from age 18, so it's important to consider whether this is suitable for the family's objectives.
So, what should you do?
There isn't one answer that will suit every family. Who is making the gift, how much you're putting aside, how the money will be held and when you'd like the child to have access to it can all make a difference.
These are exactly the sorts of things worth talking through with your accountant before you move the money, so you understand the options and any tax implications.
If you're thinking about putting money aside for children or grandchildren, perhaps we can help. Kevin and his team are always happy to have a conversation and help you work out what makes sense for your family.
