The Child Trust Fund
The Child Trust Fund (CTF) is a long-term savings and investment account set up by the Government, and is for all children living in the UK born between 1 September 2002 and 31 December 2010 inclusive.
There are three main types of CTF account, available from providers approved by HM Revenue & Customs (HMRC), either direct or through their distributors:
- Savings accounts
- Accounts that invest in shares
- Stakeholder CTF account (charges no more than 1.5% a year)
The choice depends on various factors, such as attitude to risk and return, and the charges involved, but essentially the first type of account is a form of deposit account, paying interest, while the others involve a stock market investment.
Family and friends can still contribute at any time, up to a maximum of £4,000 in any one year (the CTF starts on the child’s birthday).
When children reach the age of 16, they are entitled to manage their own CTF accounts. When they register with the provider as the new registered contact, they will receive the annual statements and will be able to move the account or change the type of account. But they will not be able to withdraw money from the account until their 18th birthday, at which stage the account stops being a CTF account and the funds become unconditionally available to spend or continue investing.
Although there is no tax relief for payments into the CTF, any growth in the fund is free of both income tax and capital gains tax. In addition, the special rule affecting children's income in excess of £100 from capital provided by parents does not apply.
The Government has announced that it is to allow savings kept in a Child Trust Fund to be transferred to a Junior ISA from April 2015. This will open the way to products with better returns and lower charges on the savings.