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Tuesday, 18 January 2011

Child Trust Fund

The Child Trust Fund (CTF) is a long-term tax-free savings and investment account for children born on or after 1 September 2002. The government gives every eligible child a voucher to start their fund.

Update: Changes to the Child Trust Fund scheme from August 2010

You may have seen the news that the government intends to reduce and then stop CTF payments.

The first lot of changes are now in place and these are as follows:

  • from 1 August 2010, the extra payments for seven year olds have stopped
  • from 3 August 2010, the £250 payments have gone down to £50

The rest of the information on this page explains more about these changes and also gives general information about CTF accounts.

To find out more about all the planned Government changes, you can follow the link below.

How the CTF works

You use the government voucher to open a special account that your child will be able to access when they reach 18. Parents, family and friends can together add up to £1,200 to the account each year.

There is no tax to pay on the CTF income or any gains (profits) it makes until your child reaches age 18.

Who is eligible

Your child will be eligible if they:

  • were born on or after 1 September 2002
  • qualify for Child Benefit
  • are living in the UK
  • are not subject to any immigration restriction

Your child will not be eligible for a CTF if you're an asylum seeker waiting for your asylum claim to be processed.

How much your child will get

You get £50 if the date you started to qualify for Child Benefit for your child is 3 August 2010 or later.

You get £250 if the date you started to qualify for Child Benefit for your child was 2 August 2010 or earlier.

If you haven't already made your claim for Child Benefit, don't delay. Your claim can only usually be backdated by up to 3 months.

You're on a low income

You may also get an extra payment if both of the following applies:

  • your child is part of a household getting Child Tax Credit
  • your total income (including that of any partner you may have) is £16,190 or less for the tax year that starts on 6 April 2010 and ends on 5 April 2011

The amount you get will be the same as the basic CTF payment you're entitled to. This will be the amount shown on the CTF voucher you received  For example:

  • if you're entitled to £250 you will get an extra £250
  • if you're entitled to £50, you'll get an extra £50

The extra payment is paid directly into the CTF account once your Tax Credit award has been finalised.

Your child is seven years old

If your child turned seven before 1 August 2010 you will get a further payment of £250. But you'll be paid £500 instead if both of the following apply:

  • your total income (including that of any partner you may have) is £16,190 or less
  • you have a finalised Tax Credit award

You won't get an extra payment if your child turns seven on or after 1 August 2010.

You get Disability Living Allowance (DLA) for your child

If you were paid DLA for your child at any time from 6 April 2009, you can get an extra yearly CTF payment as follows:

  • £200 - if you were paid the highest rate care component of DLA
  • £100 - if you were paid any other rate of DLA

These payments are paid directly into the CTF account.

For children looked after by local authorities (or health trusts in Northern Ireland)

There are special arrangements for children looked after by local authorities, or health trusts in Northern Ireland, to make sure they don't miss out.

For every continuous year a child is looked after in the care of a local authority (health trust in Northern Ireland) their CTF will receive £100. These payments are made by the local authority/health trust and will count towards the £1,200 that can be paid into the account each year.

Issue of the CTF voucher

To qualify for a voucher you have to be claiming Child Benefit for your child.

If you haven't received a voucher within a month of starting to claim Child Benefit, or if you lose the one you have, call the CTF helpline on 0845 302 1470 or textphone on 0845 366 7870 (8.00 am to 8.00 pm Monday to Friday; 8.00 am to 4.00 pm Saturday; closed on Sunday).

Alternatively you can visit the CTF website if you need a replacement voucher.

If you don't open a CTF account within 12 months of the date shown on the voucher, the government will open a CTF account for your child.

Types of CTF account

There are three types of account (which include ethical and Shari’a options):

Stakeholder accounts

Stakeholder accounts invest your child's money in a number of companies in order to reduce the risk. They also meet standards on low charges.

Once your child is 13, the money is moved to lower-risk investments, so your child's money is safer as they approach 18.

(If you don't use the CTF voucher before it expires, HM Revenue & Customs (HMRC) will open a stakeholder account for your child and then write to you giving you details of the account.)

Accounts that invest in shares

These accounts invest your child's money by buying shares in companies.

Shares give part-ownership of a company, so the value of your account is linked to how the companies perform. It's important to remember that the value of shares can go down as well as up and that shares are a long term investment.

Savings accounts

If you don't want to invest in shares, you can open a savings account instead. Savings accounts are seen as a safe place to keep money, but the interest paid usually only makes up for inflation keeping the 'buying power' of your child's money the same.

Opening a CTF account

You can open a CTF account:

  • at banks, building societies, friendly societies or credit unions
  • with fund managers, insurance companies or investment trusts
  • through some local high street shops (working in partnership with providers to make CTF accounts easily available)

Shopping around

Before you open a CTF account it's a good idea to shop around to find what different accounts offer before deciding on the right one for your child.

Managing the account

The CTF account will be in your child's name, but the person who opens it (usually the parent or guardian) is responsible for managing it.

This includes keeping account statements safe, letting the relevant people know if there is a change of address, and changing the account or provider - depending on the child's best interests.

Your child will take responsibility for their account for themselves when they reach 16 and the money will become available to them when they reach 18.

Adding money to the account

In addition to any payments made by the government, you, other family members and friends can make contributions to the fund up to an annual limit of £1,200. This limit runs from your child's birthday in one year to their next birthday.

How the account is taxed

The CTF is tax-free until your child is 18. This means that neither you nor your child will pay tax on income and gains in the account during this time.

Once they reach 18 the account will be taxed in the normal way.

Other savings accounts for children

If your child isn't eligible for a CTF account, you can still start saving for them. There are many accounts on the market specifically for children.

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