Martin Lewis explains the £100 tax trap catching parents out

In reality, children are taxed in much the same way as adults. They can earn up to £12,570 a year before paying income tax, but most never reach that level, meaning their income often goes untaxed.

However, there’s one key rule that often catches families out - and it centres on savings.

In a new post on X, Martin Lewis explains: “There is one big difference between the way children pay tax and adults pay tax.”

The issue arises when parents put money into savings accounts in their child’s name. If that money earns more than £100 a year in interest, the tax situation changes.

He says: “If a parent is putting money away for their child… and that earns over £100 a year… then that is taxed at the parent’s marginal savings tax rate.”

The big mistake many make when saving or investing for their children… best-buys too! | Car finance payouts to be delayed? | And far more. Easy, explanations & your questions answered. Do give it a listenhttps://t.co/O7b14FLwb2https://t.co/R4eZdU6Xi2https://t.co/RCrSyznDx9

— Martin Lewis (@MartinSLewis) April 23, 2026

In simple terms, the parent - not the child - may have to pay tax on those savings.

The rule exists to stop families shifting large sums into children’s accounts purely to take advantage of tax-free allowances.

As Martin Lewis puts it: “If not, then many parents could simply put all the savings in their children’s name.”

For those looking to save larger amounts, he points to an alternative.

“If you are a parent looking to give a substantial chunk of money to your child, that’s when a Junior ISA comes into its own.”

These accounts allow up to £9,000 a year to be saved tax-free in a child’s name.

For many families, understanding the difference could help avoid an unexpected tax bill—and make savings go further.