The Child Trust Fund

Not that I am going to refuse the trust fund for my daughter. But it is a bit coincidental that the money is being dished out just before the General Election. Or am I just too cynical for my own good? :roll:
It could appear to be cynical but was first proposed back in 2001. They may well have pushed the timing to ensure the cash was actually delivered in time for the election though - who knows....

A few facts and figures...

In a nutshell:

Child Trust Funds (CTFs) became available in January 2005, with the government saying they will be issued by April 2005 'at the latest'. 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 then used to open a CTF account with the provider of their choice, likely to be a bank, building society or investment company.

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.

How far will £250 go?

On its own it will grow to around £1, 410. Once you factor-in the driving lessons and average university debts of £11,000, it wont go far. But it is better than nothing. Research carried out by Virgin Money revealed that on average, parents are prepared to contribute £38 a month into a Child Trust Fund. That, plus the Government's contribution could result in a pot worth more than £14,000 at age 18. If parents could save the equivalent of Child Benefit each month they could expect the final sum to be closer to £27,000, presuming (an optimistic) 7% annual growth.

We had a baby last year - will they miss out?

The Treasury will backdate all payments to cover newborns from September 2002. Before CTF accounts become available in 2005, vouchers and information will be sent to parents or children born between September 2002 and the date on which the vouchers are issued.

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. Interest will also be added by the government. If your baby was born between September 2002 and April 2003, its fund will be worth £277 or £553 next April. Babies born between April 2003 and April 2004 get £268 or £536 respectively while those born between April 2004 and April 2005 will get £256 or £512. Children born before September 2002 get nothing.

Can parents contribute to the CTF?

The CTF can be topped up by family and friends of the child, and the children themselves when older. Additional contributions of up to £1200 a year between them. In addition to this, the government has promised that it will make a a second and final payment into all CTFs when children reach the age of seven but the amount of that sum has yet to be announced. The CTF will not operate like a traditional savings account. 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.

Will the CTF be tax-free?

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.

How will we keep track of the CTF's value?

Your account provider will issue an annual statement.

How will we choose the right CTF account?

It will be up to you to shop around for the type of account which suits your needs and risk profile. Some will offer the total security of a deposit account and other will have an investment element which may deliver better returns on the understanding that there is some risk involved. Make sure you know just how a particular account works before you sign on the dotted line.
It does appear to be a good scheme. But I feel it may only contribute to the 'get rich slow' ideal of the chavs and Trisha guests who will see this as yet another excuse to breed for a fee. Maybe the Govn should pay these types £250 not to drop sproggs left, right and Chelsea? Extinction through distinction.
I read an excellent one in the Times Financial. This guy was asking himself how much this will cost Govt in the long run. Answer was 10 Billion in donations and lost tax earnings on the accounts! so, he asks, will the Govt say "OK little Jimmy - go and piss it up a wall".....obviously the answer is no, so he reckons a voucher scheme that can be spent on approved Govt areas, ie, educations, courses etc. Do you REALLY trust them to just hand it over (the tax free savings + 500 quid) for you to allow Timmy to do his Thailand tour with....???.

dont trust them, i think there will be caveats of some sort on what it can be spent on.

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