Children’s savings have taken a blow this week, with the announced abolition of the Child Trust Fund scheme (CTF).
The Child Trust Fund scheme provided a £250 or £500 child trust fund voucher to every child born after September 2002, for investment only in a Child Trust Fund. It has now become the victim of government cuts and will be phased out completely by the end of the year.
The companies managing existing Child Trust Funds have pledged to continue to so do, but there is speculation that rates of interest in the accounts, and government’s gentle tax treatment of savings in the scheme, could be adversely affected once the CTF scheme is closed. Savers may, therefore, feel less confident about continuing to use the CTF for future contributions to their children’s savings.
For them, and for future parents who will no longer receive the child trust fund voucher, there are a number of children’s savings alternatives, moving forward.
Children’s Savings – What are the options?
There are many providers offering savings accounts specially designed for childrens savings. Tax-free interest is available on children’s savings, but not automatically – parents must fill in an R85 form for each account.
You can set up an offshore bond for your child, which makes your children’s savings tax-free while the funds are still held offshore. They can be brought back ‘onshore’ once your child turns 18, at which point tax is payable on your children’s savings. However, if this is done over time, the tax can be written off against your child’s tax-free allowance, which is the same as an adult’s i.e. currently £6,475 per year.
ISAs can be opened for a child, once they turn 16, offering tax-free savings in the cash ISA, and tax-advantaged savings in the stocks and shares ISA.
Children’s Savings – Children’s Bonus Bonds
Children’s Bonus Bonds are a secure savings option guaranteed by NS&I, which is linked to HM Treasury. You can save from £25 to £3,000 in each bond ‘issue’ and returns are free of tax. The bonds can be held until your child turns 21, at which point they must be cashed in, as they are no longer deemed to be children’s savings. You can use these bonds for children’s savings for any child – not just your own!
Children’s Savings – Child Stakeholder Pension
Did you know that it is now possible to open a pension fund for a child? The pension fund operates according to the same rules as any adult fund, and cannot be accessed until your child retires – however, your gift to your child is the constant knowledge that your children’s savings may have grown very substantially over a long time invested in the stock market, and could provide them with a considerable cushion, at the end of their working life.
Would you like to learn more about children’s savings? Make a savings enquiry online now or ring freephone 0800 678 5929.
