Child Trust Funds - How Do They Work?
While the idea of Child Trust Funds has been mentioned for a few years, and recently came into being, many people are still not aware of what their children are entitled to and how it works.
In summary, the Government have promised new born babies a minimum lump sum payment of £250, rising up to £500 for low income families. These funds will be held in a Child Trust Fund until the child reaches 18 year of age, at which point they can be withdrawn free of any tax charges.
The Government have also announced plans for a further payment at seven years of age, although the amount has not yet been confirmed. The fund can also receive further contributions on behalf of the child involved, the donor(s) will not be able to claim tax relief on the payment(s).
It has been estimated that if the fund were topped up with a payment of £10 per month, and all child benefits were paid in, then the fund could be expected to grow to in excess of £20,000 (taking into account a small rate of interest) by the time the child reached 18 years of age. This may prove useful to fund further education, go towards a house, or form a nice nest egg for later life.
What happens if you do not claim your payment?
If for some reason you forget, or are unable to claim the payment on behalf of your child, an account will automatically be set-up by the Government. You will then be able to take control of the account at a later date, on behalf of the child.
What can you invest into?
There are strict guidelines as to what you can and cannot invest the funds into, with volatile high risk instruments prohibited, in place of long term investments. The full list is available upon request, and may change from time to time.
While these funds have received little real publicity, they are something which will prove very useful in the future.
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