Bank and building society interest is usually paid with 20 per cent tax taken off, unless you don't pay tax and have registered to receive the interest gross by completing from R85.

If you receive income from investments in the form of dividends these will have 10 per cent tax deducted before you receive the dividend. If you are a higher-rate taxpayer you will have a further 22.5 per cent to pay to, making the overall tax aid 32.5 per cent.

Tax-free savings

Some ISAs, PEPs, Child Trust Funds, premium bond prizes, some National Savings schemes and Save as You Earn (SAYE) are free of tax.

You can invest up to £7,000 in ISAs each year. You can have one maxi ISA, or two mini ISAs, saving up to £3,000 in cash and up to £4,000 in stocks and shares.

Investing in a stocks and shares ISA no longer saves you tax unless you are a higher-rate taxpayer, or likely to pay capital gains tax. This is because ISA managers used to be able to reclaim the 10 per cent dividend tax credit, but this is no longer possible.

Corporate bonds or cash-based unit trusts through ISAs still pay interest which is tax free.

Children and savings

Children are taxed in the same way as adults and have their own personal allowance.

As children are normally non-taxpayers you need to register to receive any income from savings gross, by filling in from R85 available from your bank or building society.

Income arising from gifts to your own child is taxed as your own, unless it comes to less than £100 a year - per parent per child. The rule doesn't apply to gifts from grandparents.

Child Trust Funds (CTFs)

Children born after 31 August 2002 are entitled to a £250 voucher to be invested in a CTF.

If the child is from a low-income background they will get a further £250 to invest.

Children will receive a further payment when they reach 7 year of age and the government is considering a further payment at secondary school age.

The vouchers must be invested in a CTF until they reach 18 and the accounts are tax free. Other people will be able to contribute to a total of £1,200 a year to a child's account.