On 24 May 2010 the Government announced that it intended to reduce and then stop Government payments to Child Trust Fund accounts. Parliament has now passed the Regulations necessary to introduce the first stage of these changes with effect from August 2010.
How do these changes affect government payments to Child Trust Fund accounts?
Starting payments
Parents of eligible children for whom Child Benefit is first paid from 3 August 2010 will receive a £50 voucher from the government to start a Child Trust Fund account for their child. Typically children born on or after 2 August will receive a £50 voucher.
Additional payments to children in low income families
Similarly, children in a low income family for whom Child Benefit is first paid from 3 August 2010 may be eligible to receive an additional £50 government payment into their account. Typically children qualifying for this £50 government payment will have been born on or after 2 August. Check here for the qualifying conditions, but please note the differences in the amounts paid into the accounts of children born before and after these rules came into force.
When a child reaches age 7
There will be no Government payments into Child Trust Fund accounts when a child reaches age 7 for children whose 7th birthday is after 31 July 2010. Eligible children that turn 7 on or before 31 July 2010 will still be eligible for government payments made at age 7. See here for details.
Where a child is disabled
From April 2010, children entitled to Disability Living Allowance (DLA) receive annual payments of either £100 or £200 dependent on the care component of their DLA award. The new rules mean that no payments will be made into Child Trust Funds for DLA entitlement of any kind in the tax year 2011/12 onwards. Children with a Child Trust Fund that are entitled to DLA at any point before 6 April 2011 will be eligible for a government payment. See here for details.
Children being looked after by local authorities
Where children being looked after by local authorities do not have a Child Trust Fund the government opens an account for them with an initial payment to kick start the account. For children being looked after by local authorities who were born on or after 2 August 2010, the government payment into such an account will be £100.
What happens if I have got a Child Trust Fund voucher but have not used it before these new rules come into effect?
You can still use the voucher up to its expiry date to open a Child Trust Fund for your child. If you fail to do so then HM Revenue & Customs will open an account on your child’s behalf. The account will receive a government payment at the level that applied when they first had Child Benefit paid for them – this is the amount shown on the voucher you received.
What other changes to the Child Trust Fund rules are planned?
The Government proposes to introduce further legislation in the autumn to stop the remaining government payments to CTFs. The intention is that children born from January 2011 onwards will not qualify for a Child Trust Fund account and no further government payments will be made.
What will happen to Child Trust Fund accounts after December 2010?
Children born after December 2010 will not be eligible for a Child Trust Fund. But accounts set up for eligible children will continue to benefit from tax-free investment growth and no withdrawals will be possible until the child reaches age 18. The child, 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 change the type of account and/or move it to another provider.
