What Are Child Trust Fund Accounts?
Child trust fund accounts are savings accounts that are designed to be a long-term and tax free investment.
These trust funds are for UK children born between 1 September 2002 and 2 January 2011. Qualification for a child trust fund account is specific. The child must meet all of the following conditions to qualify:
1. Children must have been born between the qualifying dates.
2. Parents were paid a child-benefit for that specific child before 4 January 2011.
3. The child lives in the United Kingdom.
4. The child is without applicable immigration restrictions.
How Child Trust Fund Accounts Work:
Qualified children receive a voucher from HMRC that is to be used to open a child trust fund account. The amount of the voucher can vary from 50 – 250 pounds. The amount of the voucher is dependent on when the child was born as well as when they became qualified for an account.
The account is a long-term investment. The money can not be extracted before the child turns 18 years of age. The interest or gains are not taxable while the account is intact. Outside contributions can be made to the account by parents, other family members or even friends.
The maximum contribution is 1200 pounds per year. The year begins on the child’s birthday and ends one day prior to the child’s next birthday. Rules vary by providers/banks. To make sure that the fund is being set up in accordance with the parent or guardians wishes, it is important to check with several providers.
How To Open A Child Trust Fund Accounts?
Vouchers must be taken to anyone of the approved child trust fund account providers. The provider will set up the account accordingly. It is important to interview several providers as the methods by which the child trust fund will be governed vary from provider to provider.
Parents of children that are taken care of by a local authority will not receive a voucher. The local authority will set up the trust fund for your child.
There are several different types of accounts that are offered by providers. Questions that should be asked before opening a child trust fund are:
- What kind of fees are charged by the provider to run the account?
- Are there monthly or yearly deposit requirements?
- Does the provider require a minimum amount?
- What is the return on investment? Or What should the expected value of the account be when the child turns 18.
- What are the account management options? Telephone, In person, or via the Internet?
- What are the guidelines for making deposits? Can other people make deposits into the account?
- What are the steps to check the accounts balance?
I have included a video to help further explain child trust fund accounts for you:
Managing Child Trust Fund Accounts:
All child trust funds are put into the names of the child. The manager of the fund is the person who opens the account. They are also designated as the registered contact. It is the responsibility of the registered contact to manage the fund.
Management should include keeping the accounts paperwork, reporting demographic changes, or change the account type or provider.
At age 16, the child becomes the manager or registered contact.
This is a long-term investment, and as such, the money is not touchable until the child becomes 18. In the event of the child’s death or in cases of terminal illness, there are other rules that can be applied.
When the child becomes 18, the money in the account belongs to them. There is instruction available to when the child becomes 16 that will teach them how to manager their money. The educational focus is teaching the child about future monetary needs.