February 6th, 2020
Does a child have to pay tax?
I have been asked this question recently and some people are surprised to learn that YES, a child may have taxable income which is chargeable. The child does still have full entitlement to personal allowances and reliefs as an adult would.
What age is a child? A child is less than 18 years old.
The youngest age that a child can work part-time is 13, except children involved in television, theatre and modelling. A performance licence is required in these circumstances.
A child can only start full-time work when they have reached the minimum school leaving age. The specific dates are different for England, Northern Ireland, Scotland and Wales, although the child has to be over 16 years of age.
Children and companies
There is no statutory provision prohibiting a child from owning shares. However, some companies will not accept shareholders under the age of 18 years by provision in their articles or terms of issue.
However, be warned, the issue to children of shares in the family company was held to be a settlement with the result that dividends were taxable as the parents’ income (Bird v HMRC [Sp C 720]).
Subject to very limited exceptions, a child under the age of 16 cannot be appointed as director of a company (CA 2006 s157).
Child Trust Funds
A Child Trust Fund (CTF) is a long-term tax-free savings account for children. There is no tax on the income or gains of a CTF. Similarly, there are no tax charges when the fund matures on the child’s 18th birthday. No CTFs can be opened for children born after 2 January 2011. With effect on and after 6 April 2015, all the savings in a CTF can be transferred to a junior ISA for the child in question, with the CTF then being closed.
Anyone (including the child) may make payments into the CTF, although there is a limit of £4,368 (2019-20 tax year) for any one year (the subscription year). A subscription year is the period from the opening of the account to the child’s next birthday, and each succeeding period of 12 months.
Withdrawals from the account are not permitted before the child reaches the age of 18 except in three circumstances as follows:
- the account provider is allowed to make deductions in respect of management charges and incidental expenses.
- where the child is terminally ill.
- where the child dies before reaching 18.
Junior ISA (Individual Savings Accounts)
There are two types of Junior ISA:
- cash Junior ISA
- stocks and shares Junior ISA.
The child can have one or both types of Junior ISA. All income and gains are tax-free.
The Junior ISA belongs to the child; the parents or guardians will usually manage the account, although the child can manage the Junior ISA if over 16 years old.
