Child Trust Fund Accounts

By David Collier CA CTA

It's not often the Government gives taxpayers something for nothing but in the near future all children of a certain age will receive a Child Trust Fund - a cash gift from the Chancellor.

Background

The Government's idea for a Child Trust Fund (CTF) is to allow children on reaching the age of 18 to have a lump sum, provided from an initial government payment at birth, a further payment at age 7, together with other contributions from parents, family or friends.

Details

The Child Trust Fund bill received Royal Assent on 13 May 2004. Further regulations are still being published and the main points may be summarised as follows:-

Eligibility:

• The funds will be paid to children born on or after 1 September 2002.
• CTF will be paid in respect of children for whom Child Benefit is payable (together with some others). No application form will be needed.

Contributions and Investment:

• The initial contribution will be £250, and it will take the form of a voucher issued by the Inland Revenue.
• A supplementary contribution of £250 will be given to children in families where annual household income is below the Child Tax Credit threshold of £13,230.
• A subsequent voucher will be issued when the child reaches the age of 7. The value of this voucher has still to be decided.
• The parent or guardian of the child can take the voucher to a CTF provider of their choice, who will obtain the payment from the Inland Revenue. In the absence of any choice within one year, the Inland Revenue will decide on a provider.
• The provider will invest the amount on behalf of the child, and access to the fund will be given to the child at age 18. Early access will be given for children receiving Disability Living Allowance or those who are terminally ill.
• Parents, family or friends may make cash contributions into the CTF up to an annual maximum of £1,200. The "year" for this purpose will be related to the child's birthday and not the tax year.