Below is a list of questions that are answered in this section.
Questions
What happens if I don't put any money into the account?
If my child was born between 1 September 2002 and 5 April 2005 will I be able to put in more?
Can I avoid inheritance tax by putting money into a Child Trust Fund (CTF) account?
Can I keep paying into the account once my child is 18?
How is the CTF different to the savings account I already have for my child?
What are the tax benefits of a CTF account?
Answers
Q. What happens if I don't put any money into the account?
A. The account will be there until the child is 18 with the Government payments and any income and growth on the money in the account.
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Q. If my child was born between 1 September 2002 and 5 April 2005 will I be able to put in more?
A. No. The annual limit of £1,200 is for each separate year and there will be no rollover for those early years.
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Q. Can I avoid inheritance tax by putting money into a Child Trust Fund (CTF) account?
A. No. Each person can give away up to £3,000 every year, to any other person (donations to charities don’t count towards this figure), without any Inheritance Tax consequences.
The maximum that can go into a CTF is £1,200, but if you made this gift and no other, it would not attract Inheritance Tax unless you were contributing that amount into at least three children’s CTF accounts. In addition you can give away any number of amounts of up to £250 in a year, so long as they all go to different people, without any Inheritance Tax consequences.
You can give greater sums away so long as you derive no benefit from the gift and you survive for a further seven years. If you do not survive seven years all, or part of, bigger gifts will fall back into your assets (or ‘estate’) for Inheritance Tax purposes. Inheritance Tax is currently payable at 40% on sums above the £312,000 limit if you leave an estate worth more than this.
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Q. Can I keep paying into the CTF account once my child is 18?
A. No. When the child turns 18 the account will no longer be a CTF account. There will be a number of options on what the child can do with the money at 18, which may include investing it in another account and you may be able to contribute to this.
Information on all the options will be given as children approach 18.
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Q. How is the CTF different to the savings account I already have for my child?
A. There are several key differences:
the Government makes contributions for each child, with more for children in lower income families. The CTF is a long-term savings and investment account and your child will not be able to withdraw the money until they are 18.
There is no tax on the interest or the capital growth arising on the investments in the account. A maximum of £1,200 can be saved each year in the account by parents, family and friends. The normal rules where parents pay tax on interest of more than £100 arising on capital they have given to the child (the ‘settlement rules’) do not apply.
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Q. What are the tax benefits of a CTF account?
A. Your child does not have to pay tax on any of the income from their CTF savings and investments. This includes dividends, interest and bonuses.
Your child does not have to pay tax on capital gains arising on their CTF investments. (But note that this means that losses on CTF investments cannot be allowed for Capital Gains Tax purposes against capital gains outside the CTF.)
If the provider is an insurer they do not have to pay tax on income and capital gains on investments used to back your child's CTF life insurance policies. And your child does not have to pay any tax when the policy pays out.
The income and capital gains from your child's CTF account do not have to be declared in a tax return. Nor do you have to tell the tax office that your child has a CTF account.
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