Child Taxation: 1. General Rules
Published / Last Updated on 26/07/2021
For tax purposes, children are treated in the same way as adults.
This means that children are subject in their own right to income tax and capital gains tax (CGT) on their income and gains.
Like an adult, a child may have both earned and investment income. Not just child ‘stars’ but any child with a weekend or holiday job has earned income potentially subject to income tax. In addition, investment income e.g. interest from bank and building society accounts will also be included in any income tax calculations.
Personal Allowances
Given that children are subject to income taxes and capital gains taxes, they are therefore entitled to a full personal income tax allowance and annual capital gains tax allowance.
For many children, it is unlikely that they will exceed personal allowances or capital gains tax allowances, so a self assessment return is not required. For child ‘stars’ or other children with significant income, a tax return will be required in the same way as adults.
Anti-Avoidance
Many parents may try to reduce their own tax liabilities by settling (putting) assets in trust in the name of the children. The Income Tax (Trading and Other Income) Act 2005 (ITTOA 2005) provided anti-avoidance measures meaning that many settlements by parents in the child’s name will be taxed as if it it the parents income or gains. More on ITTOA 2005 in the next video in this series.
