The Child Trust Fund

In the April 2003 Budget, the Chancellor of the Exchequer announced  the introduction of the Child Trust Fund (CTF).

The CTF is a savings and investment account for children.
Children born on or after 1 September 2002 are eligible provided they live in the UK and child benefit has been awarded for them.

There is no need for parents to claim the CTF. Once a child benefit award has been made and eligibility for the CTF accepted, an initial payment in the form of a voucher worth £250 will be sent in the post to the parent or carer. The voucher can then be used to open a CTF account for that child.

An additional £250 will be paid to children in families eligible for full Child Tax Credit (CTC) with household income at or below the CTC income threshold (£14,495 for 2007/08).

The Government has also promised to make another payment to children on their seventh birthday.

The money must be invested in a CTF and cannot be accessed until the child is 18 years old. The money belongs to the child, although it is managed by a person with parental responsibility until the child is 16. Children over 16 will manage their own CTF accounts.

Parents, family and friends will be able to contribute up to a total of £1,200 a year to a CTF account. Income arising on a CTF account is exempt from tax.

The Government hopes that the scheme will encourage saving and that the money will ultimately be used to help with further education costs or towards the purchase of a home. However, there will be no restriction on how the money in the CTF account is used. 

There are a variety of CTF ccounts with all providers making available a stakeholder CTF account. Charges for this account will be kept low and it is designed to give good returns over 18 years by investing in the stock market. The risks are controlled by making sure that there is a mix of investments and that there is a shift to lower risk investments as the child nears the age of 18.

If an account is not opened before the initial voucher expires (usually 12 months from issue) the Inland Revenue will open a stakeholder CTF account on the child’s behalf.

The CTF account and the income and gains from that account do not affect family benefit and tax credits during the time the CTF account is open.

Information is also available  in nine languages on the CTF website.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. Piper Smith Watton cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.