Children, like adults, can have a certain amount of income before they start paying tax. They are entitled to the same personal allowance as other people. So, for the tax year 2006-2007, they can claim back the tax on their savings income if their total taxable income is less than £5,035.
There are special rules if the savings have been given by a parent - see more information.
Children under 16 in Scotland or under 18 in England, Wales and Northern Ireland cannot apply personally to get their tax back; a parent, guardian or trustee must do it for them.
Interest on a child's account can be paid without tax taken off but children
under 16 cannot sign the form R85 themselves. A parent or guardian must
complete form Getting your interest without
tax taken off (R85) with the child's details and sign it on his or
her behalf. If their account is in someone else's name (e.g. a grandparent)
the child's parent or guardian must still sign the form.
If the child's total income, including interest, is expected to be less than the personal allowance, interest can be paid 'gross' (that is, without tax taken off) until 5 April after their 16th birthday. More information on what happens when a child turns 16.
Read more about the Child Trust Fund.