This is another potential source of discord between Number 10 and Number 11 Downing Street. Why? Because Leo Blair doesn’t qualify but young John Brown does! The Chancellor unveiled his proposal for a Child Trust Fund (CTF) in the April 2003 budget but they won’t start operating until April 2005.
So what does the Child Trust Fund, also known as a ‘baby bond’, do for you? Well, parents of any children born on or after 1 September 2002 will receive a voucher worth at least £250.
Poorer parents will get more. If your family income is below the Child Tax Credit income limit (currently £13,480), the value of the voucher you receive will be boosted by an extra £250. You can’t spend the voucher. It isn’t your money. What you can do with it is set your sprog on the right financial road at a very early age. You may invest the voucher in a CTF account of your choice and you (and anyone else – the investment limit does not bar contributions from anyone – parents, family or friends) will also be able to add further savings up to a maximum of £1,200 a year up to the age of 18 on behalf of the child.
The CTF vouchers started going out in January but the accounts don’t start operating until April. In addition to the initial voucher payment, the government is also planning to add a top-up payment – the amount is still to be decided – on your child’s seventh birthday.
If the voucher has not been invested after 12 months, the Inland Revenue will invest it for you in a default stakeholder fund in the child’s name. Like individual savings accounts (ISAs), CTF savings may invested in investment funds holding shares or bonds or held in basic deposit accounts.
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I SHOULD POINT OUT THAT THERE HAVE BEEN CRITICS WHO HAVE BRANDED CTFS AS A GIMMICK: PURE POLITICAL POSTURING BY GORDON BROWN
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I should point out that there have been critics who have branded CTFs as a gimmick: pure political posturing by
Gordon Brown. According to Scottish Friendly, the £250 that your offspring gets will, at six per cent a year, turn into £951, worth, adjusted for inflation, just £609 in 18 years’ time, assuming you get a second voucher for £250 when junior turns seven. That’s not going to go far against a potential bill for university education that has already been forecast to pass £30,000 within the next six years.
What will make your kid’s CTF worthwhile is not what the government puts in (which, after all, is just some of our tax money being given back to us) but what you put in. Money saved in a CTF is free of tax. Again there has been criticism that this means they offer no real advantage over ordinary savings accounts because most children are non-taxpayers anyway. But this is not quite the whole story.
If you put money into an ordinary kids’ account and the interest earned goes over £100 a year, the taxman treats it as your money and not your child’s – that means you would get taxed on it. That’s not the case with a CTF. As a parent, if you can afford to, you can whack in the whole £1200 a year yourself without any tax liability |
everbeing created. For the more well-heeled among us it could be a handy way of sheltering some funds from the taxman while keeping the money in the family.
Figures from Fidelity Investments suggest that, at six per cent a year, a child born in September 2002 would receive a pot of £11,355 at 18 if you put in slightly over £20 a month on top of the voucher handouts. However, make the maximum possible payments into the CTF and your kid could be looking at a fund of £45,458.
What you can’t do is ever get your hands on the money yourself. Once it is in a CTF, the only person who can touch it is your kid and even they won’t be able to get at it until they reach the age of 18. At that point he or she is entirely responsible for the money. You have no parental control over when the money is released or how it is spent.
Despite a tight 1.5 per cent charging cap (good news for us) around 20 providers had already announced before the end of 2004 that they would offer CTFs, including the Children’s Mutual, which has teamed up with Norwich Union, Family Investments with Barclays, the Homeowners’ Friendly Society, Liverpool Victoria, Halifax, Nationwide, HSBC, Scottish Widows and Fidelity.
CTFs will also be available through ordinary retailers – Boots and Mothercare are partnering with the Children’s Mutual to offer CTFs to their customers.
You may already have received information about Child Trust Funds from the government. Starting last November, the Child Benefit Office has been sending out letters to all claimants of child benefit, about seven million parents, to increase awareness of CTFs. |
