The Inland Revenue adopts a cradle-to-grave approach to tax collection.
Even children have to pay National Insurance Contributions if their earnings exceed the weekly earnings threshold.
While many items that are designed specifically for children are not charged Value Added Tax, the Customs & Excise rules are not age-related.
As a child tax affairs are more likely to provide a shelter for the grown ups as the various exemptions are used up and you become the beneficiary of inheritance tax planning gifts.
The Inland Revenue generally treats children as individuals for the purposes of income tax.
They are entitled to a Capital Gains Tax allowance of £7,900 (tax year 2003 to 2004), which means it can be a good idea for higher-rate taxpaying parents to divert income or capital to them.
Special rules apply to the savings and investments of children who are under 18 years old and unmarried, if they are gifts from parents or if the income from all of the gifts from each parent adds up to more than £100 in a year.
Gifts to children that produce income, such as ordinary shares, will be treated as the parents' own and therefore taxed
Interest on money kept in a savings account can be paid gross to children aged under 16.
Keep tax to a minimum
Claim child tax credits
Use personal and CGT allowances
Put investments into a bare trust
Anyone who opens a bank account for a minor will have to fill in a form (R85) for the Inland Revenue applying to receive interest without tax taken off.
Anyone who puts substantial sums of money into their child's bank accounts in the hope of avoiding paying tax on interest may well find the Revenue enquiring after them.
While tax-free savings accounts might sound attractive, they are lower risk and, as such, less likely to outperform other possible investment vehicles, particularly stock market linked investments such as a unit trust. Children cannot, however, invest directly in ISAs (except cash ISAs once they are 16) or directly in unit trusts either.
So parents have to take one out on behalf of the child, thereby incurring a tax liability if the income from the investment exceeds £100 in the tax year.
The one possible escape route from tax is to put the units bought into a bare trust - making the child the sole beneficiary of the fund.
This can be done using a bare trust form, available from the Inland Revenue.