Child trust funds
As part of the Government’s intention to remove the savings scheme announced in the Budget last month, Child Trust Fund vouchers are set to fall from £250 per child to £50 for babies born from Sunday 1st August.
The £250 additional payment made to 7 year olds with Child Trust Funds will cease to be paid from the same day. All Child Trust Fund vouchers will no longer be issued from 1st January 2011.
It is likely that we will see providers of such Funds pull out of the market, with The Children’s Mutual, one of the biggest providers, already withdrawn and no longer opening new accounts.
This development will be a disappointment to those parents and grandparents wishing to put funds aside for the children’s future. However, for children with Child Trust Funds already in place, parents and grandparents will still be able to make payments into those accounts up to £1200 per year tax free, though there is a worry that interest rates for existing CTFs could start to fall once the market falls away.
What is a Child Trust Fund?
Child Trust fund (CTF) is a savings and investment account for children born on or after 1 September 2002. The account belongs to the child and can’t be touched until they turn 18.
Key points- A long-term savings and investment account where your child (and no-one else) can withdraw the money when they turn 18
- Neither you nor your child will pay tax on income and gains in the account
- £250 voucher to start each child’s account
- Children in families with lower incomes will automatically get an additional payment of £250 from the Government.
- A maximum of £1,200 each year can be saved in the account by parents, family or friends
- Money cannot be taken out of the Child Trust Fund (CTF) once it has been put in – once your child is 18 they will be able to decide how to use the money
- Children can start to make decisions about how the money is managed when they are 16
- From April 2010, children entitled to Disability Living Allowance (DLA) will receive annual payments of either £100 or £200 dependent on the care component of their DLA award
- Not just one type of CTF account – you choose the type of account you want for your child
- At any time you can move the account to a different provider or change the type of account
- It will not affect any benefits or Tax Credits you receive
