Kids savings

melly1980

atush wrote: »

But that wasn't a CTF? Anyway, good luck with the yorkshire.

Perhaps not but I still dont see what Im getting from it being a child trust fund.

AFAI can see my child wont pay tax on the 5% account provided that a certain form is filled in.

This only changes if the interest (or income) from a gift to that account exceeds £100.

Am I mistaken with this? If so I will give the Yorkshire a try anyway.

snowcat53

melly1980 wrote: »

AFAI can see my child wont pay tax on the 5% account provided that a certain form is filled in.

This only changes if the interest (or income) from a gift to that account exceeds £100.

Am I mistaken with this? If so I will give the Yorkshire a try anyway.

Interest can easily exceed £100 pa when a fund has built up, perhaps over a few years. If this is held outside a CTF/JISA it is taxable at the parents' highest rate if the money comes from the parents and AFAIK it is immaterial whether it is dripped in £20-50 a month or given in a lump sum. The taxman treats the interest as the parents' income if they have given it, BUT putting it in a CTF avoids this problem.

Edit
Cutting from MSE article
"However, there's a proviso that any interest earned on money specifically given to them by a parent is only tax-free up to £100 interest, per parent or step-parent. If your child earns more than £100, the whole lot is taxed at the parent's rate."

atush

melly1980 wrote: »

Perhaps not but I still dont see what Im getting from it being a child trust fund.

AFAI can see my child wont pay tax on the 5% account provided that a certain form is filled in.

This only changes if the interest (or income) from a gift to that account exceeds £100.

Am I mistaken with this? If so I will give the Yorkshire a try anyway.

What you got was the initial money the govt gave your child (was it 250 quid? Not sure as mine didn't get it) And possibly the extra given later (cant remember the age and amt but some got it before they closed?).

Taking this money means the govt gets to tell you what you can do with it. Eventually, when the remaing CTFs (like peps and tessas before them) are no longer giving anything to the holders you will I guess (but this is purely speculation) be allowed to transfer to Junior ISAs etc like peps and tessas were.

melly1980

snowcat53 wrote: »

Interest can easily exceed £100 pa when a fund has built up, perhaps over a few years. If this is held outside a CTF/JISA it is taxable at the parents' highest rate if the money comes from the parents and AFAIK it is immaterial whether it is dripped in £20-50 a month or given in a lump sum. The taxman treats the interest as the parents' income if they have given it, BUT putting it in a CTF avoids this problem.

Edit
Cutting from MSE article
"However, there's a proviso that any interest earned on money specifically given to them by a parent is only tax-free up to £100 interest, per parent or step-parent. If your child earns more than £100, the whole lot is taxed at the parent's rate."

right, that makes it a little clearer. So in essence no matter whether I put in 5K now or feed it in at £20 per month for 14 or 15 years as soon as the interest becomes £100 per year then this is taxed.

So the ways around this are

Stay with CTF at a toss rate
Move to 3% CTF if I can still get it
Leave the CTF where it is but start a junior ISA with the £20 per month

or if I think that me and my wife will have enough ISA space I guess I can just bash it into our own 5year ISA and give it to them at a later date (or is that !!!!!!! taxed too )

atush

I am not sure you can have a Junior ISA if you already have a CTF. AS the rulesstand now I think youc an'tbut hopefully that will change.

So, you need to transfer your CTF to get 3% if you can, and start saving elsewhere for your child. Be it in a child's reg saver or your own isas etc. And with 2 parents, you child can get 200 in interest before it is taxed. But the interest from the CTF doesn't count.

snowcat53

No you can't have a Junior ISA if you have a CTF.

You should certainly do better than 1%. However a Cash CTF is little risk but little reward. If you are prepared to take some risk you have a better chance of building a decent fund by investing in a S&S CTF. You can choose a fund according to how much risk you wish to take (most my son's is in F&C Investment trust which is modest, and has returned 20.2% over 5yr despite the market turmoils)

atush

thanks snowcat, I tried that approach but it fell on deaf ears lol. They want cash only.

I did try to point out that not all equities are very risky and do outperform cash ( I too hold F&C) but there you go.

melly1980

atush wrote: »

thanks snowcat, I tried that approach but it fell on deaf ears lol. They want cash only.

I did try to point out that not all equities are very risky and do outperform cash ( I too hold F&C) but there you go.

my issue with the equities is that you appear to have no control over them. For instance, when the time comes when my kids are 18 if that point happens to be after the market has dropped significantly (as it periodically does) then Im stuffed. I dont even have an option to get out while the going is good like you can do with normal equity investment. If im gonna go with equities, I may as well set up my own equity based ISA each year and track it to an index and shifting it if I think the market is too high or looking dodgey.

atush

Yes, you can get out as you can transfer or adjust your CTF over time (like ISAs). And yes, short term volatility can be a problem ( I had to delay a withdrawal this year for my son at Uni as we were away w/o internet when the August crash happened and had to wait til Dec for the fund to recover before taking out money). We had initially been planning on a Oct withdrawal and so had to wait 2 months. Wasn't really a problem.

But the returns over the 10yrs+ meant that I had more in the acct than if I had saved in cash, even with the volatility. So that is why I rec it. If you want to stay in cash, you can. But even at 3%, the 3K fund will lose to inflation year on year and the buying power of the money will be lower.

but yes, saving onto an S&S ISA with new money could be an option for you as you would still have the CTF in cash. For your kids and for yourselves too. My kids have both a cash savings acct (for bday money, small inheritiances, pocket money etc) and an equity savings that I pay into. Never a bad idea to spread things around.

snowcat53

This isn't a problem - within most S&S CTFs (certainly the case with f&c non stakeholder CTF) you can switch all or part at any time into cash, bonds or other non equity based investment .

Atush - you got there first!