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FOOL SCHOOL
The Child Trust Fund

February 9, 2005

The long-awaited Child Trust Fund wll soon be with us. You may remember that it was first mentioned as long ago as 2001. Well, it's almost here now and vouchers are being sent out now for parents to invest from April 2005.

Here are the key points:

  • Each child born on or after 1 September 2002 will receive an initial lump sum payment of £250 (£500 for poorer families) from the government. A voucher will be sent to the Child Benefit claimant, usually the parent, which is used to open a CTF account with the provider of their choice.

  • Family and friends of the child, and the children themselves when older, can make additional contributions of up to £1,200 a year between them.

  • The government will make a second and final payment into all CTFs when children reach the age of seven. This will also be £250 (and £500 for poorer families).

  • No money paid into the CTF can be drawn out until the child's 18th birthday, by which time it will have grown into a small nest egg - perhaps enough to make a decent contribution towards university tuition fees or a deposit on a home.

  • Children will not be taxed on the income and gains they make on the investments in their CTF account or the matured funds, but there will be no tax relief for contributions made to a CTF account. The government has also decided that current rules governing parental gifts to a child will not apply. This is where a gift from a parent gives rise to income of more than £100 in a year and the parent is then taxed on all that income at their own tax rate.

  • To ensure no child loses out, if an account has not been opened within one year of the issue of the voucher the Inland Revenue will open a stakeholder account for the child. The parent is free to assume responsibility for that account later at any time, if they wish. The government will also provide resources to ensure parents are helped to make choices about their child's CTF including an information pack.

  • You can find more details at the government's Child Trust Fund website.

Note that the Treasury will backdate all payments to cover newborns from September 2002. Before CTF accounts become available in April 2005, vouchers and information will be sent to parents or children born between September 2002 and April 2005. These vouchers will have a higher value, recognising that for these children there will be less time for their CTF to grow in value before maturity.

Find out more in our Saving For Children centre.