Child trust funds Investing in a child trust fund
The government is no longer paying money into child trust funds, but you can still pay up to £1,200 a year into a CTF
Changes to child trust funds from January 2011
From 1 January 2011, all government contributions to child trust funds have been stopped. 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.
There are other ways you can start putting money aside for your child if you are unable to contribute to a child trust fund, such as by opening a children's savings account. Read the article Seven smart ways to save for children for top tips and advice on getting started. Junior Isas, the government's replacement for child trust funds, will also be launching in November 2011.
Topping up an existing child trust fund account
The maximum you can pay into a child trust fund is currently £1,200 a year. Interest does not count towards this limit, however. The annual contribution limit will increase to £3,600 in November 2011 to align CTFs with the new Junior Isas.
If your CTF provider accidentally accepts more than £1,200, or £3,600 from November 2011, during the year period, it will return the excess to the person who paid it in. Some providers may have a special 'feeder' account that will hold the extra money until your next contribution year starts - the beginning of which will coincide with your child's next birthday.
What tax rules apply to child trust funds?
Child trust funds are governed by the same tax rules as 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 CTFs are therefore the only truly tax-free CTFs.
There is no liability to capital gains tax, and CTFs 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.
- For more information on cash Isas, call our Money Helpline for guidance from our trained advisers
- Take a look at our Junior Isa reviews
- Or take a look at our guide to stocks and shares Isas
