If you’re thinking about how you can save for your child’s future – and with the prospect of high university fees to pay and having to help them with a mortgage deposit, many parents are – then you may have heard the concept of a child trust fund (CTF) being mentioned. These can be a very effective way of putting money aside, but what exactly are they, and how do they work? Here we’ll hopefully make things a little clearer for you.
What is a CTF?
A CTF is a long-term tax-free savings account for children. You can put in money either in intermittent lump sums or regular small payments, and although the money will belong to the child, he or she will not be able to access it until they are 18.
Who is eligible?
To be eligible for a child trust fund, certain conditions must have been met. These are:
· The child must have been born between September 1st 2002 and January 2nd 2011
· Child benefit must have been paid at least once for them before January 4th 2011
· Your child must have been living in the UK
· Your child must not have been subject to immigration restrictions during this period
Where do I get my CTF?
All eligible children should have a CTF, and it may be being looked after by the local council. So if you’re not sure where the CTF for your son or daughter is held, you can use this HM Revenue & Customs form to find out.
Once you have located yours, you can easily switch it to another provider, should you wish to do so. Different providers will manage the CTF in different ways – Family Investments, for example, will invest the capital in stocks and shares, which could see stronger returns but also carries the risk of the savings pot shrinking.
Any interest earned through a CTF counts as income, which is usually subject to tax. However, HMRC does give an allowance – for the 2013-14 tax year it is £3,720 – which can be put in a CTF without having tax applied to the interest. You can put more into the account each year if you wish, but it would be more tax efficient to look towards putting the extra funds into an ISA or Junior ISA, which also carry their own tax-free allowances.