Child trust funds explained Child trust fund questions answered
Each child born after 1st September 2002 and before 1st January 2011, received a voucher
Changes to child trust funds from January 2011
From 1 January 2011, all government contributions to child trust funds have been stopped, and babies born on or after this date will be ineligible to open child trust funds.
Parents with children who already hold child trust fund accounts will still be able to contribute money to these (up to the maximum annual limit), and it will still be possible to shift your child's funds from one CTF account to another should you wish to do so.
There are other ways you can start putting money aside for your child if you are unable to contribute to a child trust fund. Read the article Seven smart ways to save for children for top tips and advice on getting started.
Is there an annual limit on child trust funds?
Most providers will only let you currently pay in a maximum of £1,200 in any one year, determined by your child's birthday. This will rise to £3,600 from November 2011 when CTFs are brought into line with the launch of Junior Isas.
If the provider accidentally accepts more than £1,200 during this period, it will return the excess to the person who paid it in. Some providers may have a special feeder account to hold the money until your next contribution year which will coincide with your child's next birthday.
Which tax rules apply to child trust funds?
Child trust funds have the same tax rules as cash Isas. This means that any interest on cash accounts is tax-free but investment funds in the share-based accounts (including stakeholders) are liable for income tax at 10% on any dividends received. Cash child trust funds are therefore the only truly tax-free child trust funds.
There is no liability to capital gains tax, and child trust funds are exempt from the '£100 rule' which applies to most other types of children's savings and investments accounts. This rule says that, if interest received by a child from money or an investment given to them by a parent comes to £100 or more a year, it will be taxed as the parent's own income.
How much can my child expect to receive from a child trust fund in 18 years' time?
This will depend on how much goes into the account, how you invest the money and what charges you have to pay.
The fees charged on accounts investing in shares could eat into your fund so much that you are as well off with a cash account – without the risk.
Of course, the rates on cash CTFs maybe low and are subject to change, so you should review your child's account each year and switch if necessary to get the best deal.
Can I choose an ethical child trust fund account?
Some companies offer ethical investment options. You can read more about these in the Which? guide to ethical investments.
All CTF providers must publicise their policy about social, ethical and environmental investments if they have one.
Do CTF providers send statements?
Yes, you'll get an annual statement so you can keep an eye on how the child trust fund is performing.
What happens to my child trust fund if I move overseas?
If you live in the UK and then move abroad after you've opened a child trust fund, you can keep the account and continue paying into it.
What if I change my mind about the type of child trust fund account I want?
You can change accounts whenever you like and there are no restrictions on the number of transfers you can make during the life of the child trust fund. This applies to internal transfers from, say, a cash child trust fund to a share based one with the same provider, or externally to a new provider.
Transfers should take place within 30 days of your request. Although there are no specific fees for transferring, stamp duty and dealing charges may still apply with share-based accounts.
How can I invest for my child outside of a child trust fund?
Most of the funds offered as stakeholder and share based child trust funds are widely available with lower charges outside a child trust fund and can normally be taken out on behalf of a child. However, the minimum amount you have to invest may be higher than with a child trust fund account.
You could get all the tax-free benefits of a CTF by opening the fund within a stocks and shares Isa (although Isas can't be opened on behalf of children so you would have to hold this in your own name and pass it to your child when he or she reaches 18 - or 16 if it's a cash Isa).
Other money given to a child by parents, for example into a children's saving account, is tax-free if it earns less than £100 in interest a year per parent. Money from family or friends is also tax-free if the interest it earns amounts to less than the annual upper limit.
- For money saving ideas, look at our guide to getting free stuff
- Take a look at our guide to childcare vouchers
- Or for alternative saving options for children, read our guide to children's savings accounts
