Guide to the Child Trust Fund

Saving for your child

This is a Government launched initiative aimed at encouraging saving. A sum ranging from £250 upwards is made payable to each child born after 1st September 2002. Children born into low income families can claim up to £500 per child.

How it works

Vouchers are collected from the Inland Revenue and placed into a Child Trust Fund account made available at most financial organisations such as banks and building societies.

The money will not be available to the child until the age of eighteen. It is hoped that by this time the sum will have grown considerably after contributions have been made by family members. The ultimate aim is to help children gain a financial footing into adulthood. Whether it is to contribute towards buying property or University tuition fees.

It has been estimated that if a weekly £10 contribution was made by family members such as grandparents then the CTF(Child Trust Fund) can grow to £5,210. If the weekly child benefit was added to this then after eighteen years the fund would stand at £27,000 with a rate of 7% annual growth.

In addition to this the Government has also promised to make an additional one off payment into the account of each child with a Child Trust Fund, when they reach the age of seven. The exact amount has not been specified.

Child Trust Fund and Tax

The payments and growth achieved by the Child Trust Fund will be tax free. In the past there have been certain rules about parental monetary gifts into a child saving account. In which case gifts over the value of £100 per year means the parent is taxed at their own income tax rate. The Government has decided that current rules governing parental gifts to a child will not apply.

Methods of Investing

There are many Child Trust Fund accounts available for investment. The type of investment made can vary between deposit savings accounts such as interest only accounts, unit trusts or life bonds. They can also make a stock market based investment via stakeholder accounts.

Ideally, parents should pick an investment that lets them move money to different types of funds over the 18 years. This means that the potential to get greater returns on the cash will be greater. Care also needs to be taken when choosing an account since charge rates vary from account to account. If no account is opened within a year the Inland Revenue will invest the money on the behalf of each child.

Summary of what you need to know

• All children born on or after 1st September 2002. will receive £250
• Children from lower income households may get an extra £250
• Money will be paid in the form of a voucher from the Inland Revenue
• Parents must choose where to invest within a Child Trust Fund account
• Accounts may be interest only, unit trusts, life bonds or stakeholder
• Parents and relatives can add to the account, up to £1,200 per year
• The child will be able to access the funds only after they have reached the age of 18
• The Government intends to pay a further sum at age seven

If you have any queries regarding the Child Trust Fund you can look at the Inland Revenue website

If you are not sure about where to invest your Child Trust Fund voucher then take a look at our selection of providers.