Children and Young people paying tax

In general, the tax system does not treat people differently on the grounds of age.

Therefore a child, just like an adult, has their own income tax allowance, tax bands and capital gains tax allowance. However, there are some rules to specific to children and young people, in particular:

* to counter tax avoidance, where a parent gives money or investments to a child and these produce an income, that income is taxed as the income of the parent not the child unless it comes to no more than £100 a year. The £100 limit applies per parent per child.

* Junior ISAs (JISAs) are available to all young people under the age of 18 unless they are already eligible for a Child Trust Fund. JISAs offer income tax exemption and capital gains tax allowances.

* some payments commonly received by young people and students are tax-free - these include: educational maintenance allowance; student loans, grants and bursaries; and most youth training scheme allowances.

* although children can be taxpayers, until they reach age 16 they have no liability for national insurance on any earnings or profits.

* if you are a student working only during your holidays and earning too little to pay tax, you may be able to arrange to receive your wages without any tax deducted using form P38S.

* since 6 April 2006, if a parent puts assets into a trust that can benefit their child, the trusts counts as 'settlor-interested'. Both income and gains made by the trust are taxed as those of the parent.

* transfers to most types of trust on or after 22 March 2006 count as taxable gifts for inheritance tax an the trust may periodically have to pay inheritance tax. These rules do not apply where a trust is set up in a parent's will to benefit their dependent child (called a 'bereaved minor's trust')

* accumulation and maintenance (A&M) trusts have in the past been a popular way to make gifts to children and grandchildren because of favourable inheritance tax treatment. This treatment no longer applies for A&M trusts set up on or after 22 March 2006. Existing A&M trusts are now also subject to harsher tax treatment, unless their terms were amended before 6 April 2008 so that beneficiaries become entitled outright to the trust assets by age 18. If they become entitled by age 25, inheritance tax will be due only in the years from age 18 to 25 and only at a maximum rate of 4.2 per cent of the value of the trust assets.