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HM Revenue & Customs points out that some children will benefit from a welcome Government windfall.

Introduction

What did you do with your pocket money when you were younger? An impressive 65 per cent of today’s Child Trust Fund kids save some or all of their pocket money.

Research by HM Revenue & Customs (HMRC) shows that five and six year olds – the same children who will be among the first to benefit from the extra £250 that the Government is paying into their Child Trust Fund accounts (CTF) – have got the saving habit already.

If your child was born on or after 1 September 2002 and was awarded Child Benefit they will already have received a £250 voucher to start their Child Trust Fund. But what you may not know is that they will receive a second £250 paid directly into their account shortly after they turn seven. And as with the first payments, the money is invested in the account of your choice until your child turns 18. Children in families on lower incomes will receive a further £250 towards their nest egg. Parents, family and friends can also contribute to a Child Trust Fund account, up to a total of £1,200 per year. 

HMRC’s research also asked the children what they wanted to be when they grow up. The top three careers chosen by children were:

• firefighter,
• police officer and
• teacher. 

The children’s reasons included that they would love to work in these careers, that they would enjoy getting to put out fires and arrest criminals and also that their mum or dad or a relative did one of these jobs. Only two per cent of CTF children wanted to do a job because it would make them famous. 

Others chose less traditional careers, including:

• paleontologist,
• cowboy,
• explorer,
• astronaut and
• blacksmith.

Parents were also asked what they would like their children to do when they grew up. The most popular careers chosen were doctor, teacher and businessman/ woman. 

For more information, please visit the Child Trust Fund website or call the helpline on 0845 302 1470.

FAQs

What is the Child Trust Fund?

The Child Trust Fund is a long-term savings and investment account. Family, friends and the child themselves can contribute up to £1,200 a year in total into the account. The funds are held in trust until the child reaches the age of 18. Neither the parents nor the child will be taxed on any interest or gains made in the account. They do not affect entitlement to benefits or tax credits. 

What about children whose parents do not open accounts?

HMRC will open a Stakeholder Child Trust Fund account for those children whose vouchers have expired after 12 months of issue without being used. Parents will be able to assume responsibility for this account at any time and change the type of account if they do not think the Stakeholder account is the most appropriate type of account for their child.

I’m a new parent with a Child Trust Fund voucher and I don’t know which type of account to open – what would HMRC advise?

Obviously we can’t give financial advice, but there are lots of sources of help for parents who are trying to decide which type of account is best for their child. An information booklet is sent out alongside the voucher, and there’s a toolkit on the Child Trust Fund website. 

I’ve chosen which type of account I want to open but I don’t know which provider to choose. 

We can’t give financial advice, but there is a list of all Child Trust Fund providers on the Child Trust Fund website. Some things to think about could be – how would you like to manage your child’s account – for example by 'phone, online or face to face.  Also you could consider whether ethical investments are important criteria for you, and how easy it is for friends and family to pay into the account. We’d encourage you to shop around and to phone or visit potential providers to get the account that best meets your needs. 

What about older children, (those born before 1 September 2002) – what is the Government doing to support them to save?

Any new policy has to start somewhere. The Child Trust Fund was introduced in 2005 and offers new opportunities and new incentives that didn’t exist before. However, outside of the CTF there is already considerable scope for tax-relieved savings for children. A child has a personal tax allowance just like an adult - £6,475 in 2009/10. In addition, many banks & building societies offer savings products especially aimed at children. However, there are special rules which mean that if parents give money or other assets to their child, (outside a Child Trust Fund account), then they may be taxed on their child’s account but only when the resulting income is more than £100 gross per parent per year.

I’d like to change the type of account that my child has (for example from stakeholder to cash or vice versa). 

Parents can transfer between account types at any time if they wish to. 

I have a disabled child, how will I receive the additional £100 or £200 per year for their Child Trust Fund that was announced at Budget 2009?

If your child is in receipt of Disability Living Allowance (DLA) at any point in 2009/10, then they will receive £100 directly into their Child Trust Fund account from the Government from April 2010 onwards, and so on for future years. Severely disabled children (those receiving the Highest Rate of the Care Component of DLA) will receive £200 per year.