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| The Child Trust Fund (CTF) is a savings and investment account which is designed to ensure that all children born on or after 1 September 2002 will be entitled to a fund of assets when they reach the age of 18. |
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The basic idea is that the Government will pay a lump sum into a savings account for each child, followed by a further lump sum when the child reaches the age of seven. Family and friends will also be able to pay into this savings account.
Eligible Children
To be eligible for a CTF, a child must have been born on or after 1 September 2002 and be living in the UK. Eligibility is dependent upon a claim for Child benefit having been made. Although the Government assume that most people will have automatically have claimed Child Benefit, there remains a significant minority which do not claim for personal or political reasons.
First payments
A voucher of £250 will be sent to the parent shortly after the claim for Child Benefits is first made. The vouchers will be sent to the parent who is actually receiving the Child Benefit. It will be dated and carry a unique reference number that will be valid for 12 months. The parent must use the voucher to open a CTF account on behalf of the child within that 12 months.
Parents may take their pick from a wide variety of providers and types of account. Transfer between providers will be possible to achieve better returns.
Some vouchers, to be sent out early in 2005, will be for more than £250 to take account of the loss in growth in not being able to open accounts earlier in the child’s life.
Enhanced payments to children from lower income families
Children from lower income families will receive an additional £250 to give their accounts an early boost. The qualifying level of household income for the extra payment is currently set at £13,480. In order to receive the additional £250, the child’s parent must have been claiming child tax credits for the year in which the child was born.
Future savings
One of the purposes of the account is to encourage savings to help the child as they reach adulthood. A further £1,200 can be paid into a child’s CTF account each year.
Seventh birthday
Once a child reaches its seventh birthday, the Government will make a further payment into the CTF account. The actual amounts will be announced nearer 2009, when the first of such payments will be made. There will once again be additional amounts for children from lower income households.
This article, sourced from the ICAEW, provides a brief overview of the topic.
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