Introduction »

Raiding the piggy bank

The coalition is to reduce and then stop the government’s contribution to Child Trust Fund (CTFs) accounts.

CTFs were designed to give children a financial head start in life with a fund accessible when they reach 18 and there are now around five million active accounts. The popularity of the accounts arises from two key characteristics. The first is the tax-free nature of the accounts, which is why they are sometimes referred to as ‘the childrens’ ISA’, and the second is the financial contribution from the government to kick start the investment.

Up until now, every baby born after 31 August 2002 has received £250 (£500 for low-income households) in the form of a voucher, with youngsters getting a top-up payment from the government (typically £250) when they reached seven.

The amount to be contributed at birth is to reduce to just £50 for births on or after 2 August 2010 (£100 for children from low-income households) and is set to cease entirely from early in 2011. The government top-up payments at age seven has ceased for those children that turn seven on or after 1 August 2010.

What about existing accounts?

Accounts set up for eligible children will continue to benefit from tax-free investment growth. No withdrawals are possible until the child reaches age 18. The child's friends and family will continue to be able to contribute up to an overall total of £1,200 a year and it will still be possible to move it to another provider.

Children born after all the relevant legislation is in place will not be eligible for a CTF account. This appears to mean that the availability of this tax-free vehicle for family investment is withdrawn as well as the government financial contribution.

For more information about CTFs generally including any further developments visit www.childtrustfund.gov.uk

Introduction »