ATXP6 UK
Syllabus A1. Income tax A1f. Income tax computation and income tax liability

A1fii. Tax position of minor children

Syllabus A1fii)

Advise on the income tax position of the income of minor children

Do minor children pay income tax?

Children are taxed on their own income from birth, this means that they will have their own income tax computation.

They will have their own personal allowance and reliefs. If needed, tax returns will be completed by the parent/guardian.

For minor children, if income comes from a source set up by a parent and exceeds £100 p.a. that income is taxed on the parent, and not on the child, provided the child is < 18 years and unmarried.

The capital can be provided by setting up a formal trust or can be a gift of money, for example, opening a bank account in the child’s name.

A child receiving investment income from capital that has been provided by the parent, this income will be treated as belonging to the parent.

Illustration

Jake sets up a bank account in Jim's name (Jim is his two year old son).

Jake provides the capital and Jim received £2,000 interest income per annum. 

Will Jake or Jim be taxed on this income?

  • Solution

    Jake will be taxed on this income because:

    1) He is the parent and the source of the capital that provides the income
    2) It is more than £100 per annum
    3) Jim is under 18 years of age

    The income will be covered by the personal allowance, so there will be no taxable income, but his income tax return must be completed.