Savings and investments for your child’s future

One thing most parents want to do is save and invest for their child’s
future and as parents of new babies have discovered in recent months,
the advent of the government’s Child Trust Fund has encouraged them to
think about it in a more concentrated fashion.

After all, long after your little bundle of joy has shed his baby fat,
discarded his teething ring and forgotten all about his Teletubby DVDs,
he’ll be wanting to move on to other toys – like a car. He’ll need money
for beer as well as for university fees, trendy clothing so he can impress
the wrong kind of girl and a deposit for a house. Daughters will want
pretty much the same and, you, the doting parent won’t want them to miss
out.

The trouble is, having a baby is expensive enough as it is and many parents
don’t have the money to spare for these future requirements, frivolous
or not. But what you can do is make sure you are claiming everything you’re
entitled to just in case it means you can spare a little to put something
by for your child’s future.

All families with children are entitled to one or all of the following
– and that means you – so don’t lose out:

Child Benefit

Child Benefit is a tax-free income paid to all parents with children
under sixteen (nineteen, if the child is in full-time study at A-level
standard or equivalent). It is paid every four weeks and amounts to £17
a week for the first child and £11.40 for subsequent children. So, a family
with two children would receive Child Benefit of almost £1,477 a year,
with no tax to pay on this sum.

Unless you need this money to supplement your income, consider saving
or investing it for your child’s future.

Child Trust Funds

If your child was born between 1 September 2002 and 2 January 2011,
and you get Child Benefit for them, they could qualify for a CTF account
and get one of the amounts shown below.

Babies born on 3 January 2011 or later, or before 1 September 2002, do
not qualify for a CTF account and won’t get any CTF payments. You could
get a higher starting payment if a local authority looks after your child.

• £250 Paid if both of the following apply:
  • you first got Child Benefit (or a European Union family benefit)
    for your child on or before 2 August 2010
  • your child was born on or after 1 September 2002 but before 3
    January 2011
• £50 Paid if both of the following apply:
  • you first got Child Benefit (or a European Union family benefit)
    for your child at any time between 3 August 2010 and 3 January 2011

  your child was born on or after 1 September 2002 but before 3 January
  2011

Child Tax Credit

The Child Tax Credit (CTC) is paid to families with children and the
amount is based on your household income. Families earning less than £13,910
receive the maximum benefit, with the payout decreasing on a sliding scale
the more you earn. If your household income is under £58,000 (£66,000
if you have a child under one), you’ll be entitled to an element of CTC.

Working Tax Credit

This is a top-up for people who are on a low income and in paid work,
whether employed or self-employed. Again, it’s means tested and, for parents,
it includes a 70% contribution towards your childcare costs if you’re
working. Working families with one child can claim as much as £175 a week
towards childcare costs while those with two or more children can claim
up to £300 a week.

If you’re eligible for the Working Tax Credit you may be able to claim
other benefits. If your income is below a certain level there is help
with health care costs such as free NHS prescriptions, NHS dental treatment
and sight tests with vouchers towards the cost of glasses or contact lenses.
Any older children may also be eligible for free school meals.

With several changes being announced in the Government’s
spending review that come into effect in April, include:

• reduction of the childcare costs that parents can claim through the
  childcare element of the Working Tax Credit (WTC) from 80 per cent to
  its previous 70 per cent level in April 2011
• changing the eligibility rules so that couples with children must
  work 24 hours a week between them, with one partner working at least
  16 hours a week in order to qualify for the WTC
• freezing the basic and 30 hour elements of the WTC for three years
  from 2011-12
• increasing the child element above indexation by £30 in 2011-12 and
  £50 in 2012-13
• removing the baby element of tax credits from 6 April. Families with
  one higher rate tax payer will lose child benefit, whilst the benefit
  will be frozen for three years for everyone else.

Childcare Vouchers

A recent improvement to the taxation of childcare vouchers, which around
one in five companies currently offer to their staff, now means that the
first £50 of vouchers each week are not liable for National Insurance
Contributions (NICs) and income tax.

Although you have to sacrifice an element of your salary to benefit
from the vouchers, it could mean an annual gain of £858 for basic-rate
taxpayers, or £1,326 for highly paid workers. The scheme is probably of
more value to those who are not entitled to Working Tax Credit as the
childcare element of your tax credits could be affected by the vouchers.

Finally, note that the forms for Child Tax Credit and Working Tax Credit
are a nightmare to fill in which might explain why up to two million of
the UK’s 7.2 million eligible families have failed to claim their full
benefits. But both are valuable income boosters so it’s worth the effort
and, besides, you can use any surplus to save for your child’s future.

The Chancellor of the Exchequer, Gordon Brown, says that a family with
two children claiming their full entitlement to benefits and tax credits
should now be enjoying an income of £21,200 before starting to pay tax.

Useful Links

• Paternity
  Leave
• Parental
  Leave
• Sure
  Start Maternity Grant
• Child
  Benefit
• Child
  Trust Funds
• Tax
  Credits
• Childcare
  Credits