Child Trust Funds

The Government-introduced Child Trust Fund scheme for all children
born after September 1st 2002 and they will receive a voucher for at least
£250 to open a fund which will give them a financial nest egg for their
future. But what exactly does it all mean? Find the answers to your most
commonly asked questions here.

Who is eligible?

All children born on or after 1st September 2002 as long
as they have been awarded child benefit, they live in the UK and are not
subject to immigration controls. The only to this are children of Crowned
servants – including the Armed Forces – posted abroad and who qualify
because they are treated as being in the UK.

What do I have to do?

Over the next couple of months, the Inland Revenue will
be sending out vouchers for all eligible children for whom Child Benefit
has been claimed. The timings are below:

If your child is born on or after 6th April 2005 you will
receive their voucher shortly after you have claimed and been awarded
Child Benefit for them.

How much will I get?

Children will be entitled to a voucher for £250, with children in families
with low incomes getting an additional payment from the Government. This
will be paid directly into the accounts of children who live in families
receiving Child Tax Credit (shortened to CTC), where household income
is not greater than the CTC threshold. (£13,480 in 2004/05 / £13,230 in
2003/04).

Children born before 6th April will qualify for a slightly larger amount
as their Trust Fund will mature sooner. The amounts are as follows:

Providers know that there will be vouchers for different amounts so they
will not be surprised to receive vouchers for more than £250.

What do I do when I receive the
voucher?

You will need to decide who will open the CTF account and
where.

Who can open the account?

• Parents or people with parental responsibility (a legal term meaning
  someone with the rights and duties of a parent) for the child can open
  a CTF account.
• Only one person can be responsible for looking after the account
  for a child under 16 and they are called the ‘registered contact.’
• Parental responsibility can apply to parents, step-parents, adoptive
  parents and guardians.
• Parents under the age of 16 cannot open an account because by law
  they cannot invest in shares. The CTF Helpline will invest on your behalf.

What type of CTF accounts are there?

There are three main types of account;

1. Savings account – A secure investment guaranteeing a return of the
initial deposit with some interest.

2. Shares – These invest your child’s money by buying shares in companies
and almost always produce a better return than savings accounts but share
values can fall as well as rise.

3. Stakeholder accounts – these invest in shares in companies but government
rules mean the money is invested in a number of companies to reduce the
risk of bad performance.

Do I have to invest straight
away?

No, although obviously the sooner you invest the sooner
the money will start growing. If you have not invested the money within
12 months the Inland revenue will invest it on your behalf into a stakeholder
account.

Where can I find out who can provide
a CFT account?

Your information pack will contain a list of all financial
institutions approved as providers for CFTs or alternatively you can visit
the Child Trust Fund website

Do I have to add to the account?

No but according to finance expert Chris Edwards, investing
as little as £4 a week would provide around £6000 on your child’s 18th
birthday at current interest rates.

Can anyone else add to the account?

Up to £1200 can be added to your child’s fund every year
by anyone who wants to help it grow, including your child, friends or
family.

When can the money be withdrawn?

The general rule is that no money can be withdrawn from
a CTF account until the child holding the account is 18. The exception
to this is where the child is terminally ill. The Government wants children
who are terminally ill to be able to benefit from the money in their CTF
accounts. Once evidence of the terminal illness has been confirmed, the
registered contact (the person who manages the CTF account for the child
or the child if over 16) will be able to withdraw money from the CTF account.

Can I change providers?

Yes, the registered contact can change providers. Your provider
will transfer the CTF account. All you need to do is sign up with a new
provider then they will let your old provider know. The new provider will
tell the Inland Revenue so that any further Government payments will go
into the right account. The new provider will then send you the statements
telling you how much money you have in the account.

What if a child dies?

The money in CTF account will go to whoever inherits the
child’s estate (any assets belonging to the child). This is usually the
child’s parents – or the husband or wife if the young person was married.

What about children born before
September 1st 2002?

Children born before 1st September 2002 are not eligible for a CTF account
but it is still a good idea to think about saving for these children -
or encouraging children themselves to save.