CHILD TRUST FUNDS: INVESTING IN YOUR CHILD'S FUTURE

The Child Trust Fund (CTF) is a tax-free way of saving up money for your children to help them cover future expenses such as paying university fees, buying a car or making a deposit to buy a first home. This factsheet explains the three investment options available and answers a range of other questions, including your child's eligibility.

IS YOUR CHILD ELIGIBLE TO OPEN A CHILD TRUST FUND ACCOUNT?

All children born in the UK on or after 1 September 2002 were entitled to a Child Trust Fund. Each child would receive a voucher worth £250 (£500 if born to low income parents earning £16,190 or less) at birth from the Government to invest in a CTF, and a further contribution of £250 (£500 if born to low income parents) at age 7 years. Parents, friends and family could top up a child's CTF account with their own contributions up to a maximum of £1,200 per year.

However, the Government has announced changes to the Child Trust Fund scheme, which may affect your child's eligibility to open an account. From 1 August 2010, government contributions to Child Trust Funds will be significantly reduced. And from 1 January 2011, they will be scrapped altogether.

 HOW YOUR CHILD IS AFFECTED BY THE CHANGES

• Children with an existing CTF account will not be affected. Parents, family and friends can continue to contribute up to £1,200 to the fund each year tax-free. Any contributions already received from the government will not have to be repaid.
• Children born between 1 August 2010 and 31 December 2010 will receive a reduced contribution from the government. Those born to low income parents will instead receive a £100 voucher and other children £50.
• Children turning 7 years old between 1 August 2010 and 31 December 2010 will not be entitled to receive the government top-up contribution.
• Children born on or after 1 January 2011 will not be entitled to open a CTF account.
• CTF vouchers issued by the government before 1 January 2011 will continue to be valid until their expiry date.
• Disabled children will receive the annual government contribution of £100 (£200 for severely disabled children) in 2010. From 2011, this annual contribution will stop.

HM Revenue & Customs provides more detailed information about these changes at: www.hmrc.gov.uk/chancellors-statement/ctf-announce-qa.pdf.

Please note that IMA’s factsheet is for information purposes only. It does not constitute advice. It simply aims to help you better understand the risks and rewards of Investment Funds and why they can help reduce the risk of loss through “*diversification*” (the spreading of your money across a range of investments). Money deposited in a bank or building society is relatively secure, whereas an investment involves stock market risk. This means that the value of your investment can go down as well as up. If you require any advice on investments, you should contact a *financial adviser*.