How to legally claim back tax on your children's savings interest in the UK

For many families, opening a savings account in a child's name is a standard step in financial planning. However, a common misconception is that this money sits in a tax-free bubble. Under current HMRC rules, any interest earned on money gifted by parents that exceeds £100 per parent, per child, per year is treated as the parent's own income for tax purposes.

If you have neglected to report this on your Self Assessment tax return, or if you were unaware of the threshold, you may have been overpaying tax. This rule applies to both parents, meaning you can effectively shield £200 of interest per child if the funds are split equally between you. Anything beyond this must be declared if it pushes you over your Personal Savings Allowance.

The Personal Savings Allowance allows basic rate taxpayers to earn £1,000 in interest tax-free, and higher rate taxpayers to earn £500. If you are a high earner or have significant savings, this child-gifted interest can quickly tip you into a higher tax bracket or erode your allowance.

Checking if you owe or are owed tax on savings

To work out if you have a claim, pull together your statements from the current tax year and the previous three

Identify the interest paid on accounts you opened for your children using money you provided. If that total interest, when combined with your own savings interest, exceeds your Personal Savings Allowance, you should have declared the excess. If you have been paying tax on this interest but the total amount (your own plus the child's) was actually below your threshold, you are entitled to claim that money back.

You can do this by submitting a 'repayment claim' via your HMRC personal tax account.

The golden rule of non-parental gifts

Crucially, the £100 rule only applies to money gifted by parents

If a grandparent, aunt, uncle, or family friend gifts money to the child, that interest is treated as the child's own income. Since children have their own Personal Allowance (currently £12,570) and their own Personal Savings Allowance, they are very unlikely to ever pay tax on this interest. If you are fortunate enough to have family members contributing to your child's future, ensure these accounts are clearly designated as 'gifts from others' to avoid any confusion with HMRC.

Taking action to correct past errors

If you discover you have overpaid tax, you can reclaim it for up to four years

Use form R40 to claim a repayment of tax deducted from savings interest if you do not complete a Self Assessment tax return. If you do file a return, you can amend your previous filings online to reflect the correct interest figures. HMRC's systems are increasingly automated, and they will often correct your tax code if they detect discrepancies, but relying on their system can mean waiting months for a refund.

Proactive reporting is almost always the faster route. Always keep a clear record of the source of the capital in each account. In the event of an investigation, you must be able to prove which money came from you and which came from other relatives. A simple spreadsheet tracking the date and source of every deposit is sufficient proof.

By keeping your finances organised in this way, you not only protect yourself from unnecessary tax bills but also ensure that your children's savings are growing as efficiently as possible.