Child Trust Funds advice please

greensmoker

Hi!
Until a few weeks ago I had no idea about the Child Trust Funds set up by the government on behalf of my 3 children. Now that we're in the investment, MSE kind of mode, I applied to the HMRC for information. I received the information and called up all 3 fund providers.

As we lived out the country for some years, the Child Trust Funds for my children were only set up in September 2011 - obviously they were all born within the eligible time frame.

So this is how they've done:

Child 1: £500 deposited in Sep 2011. Current Value: £673.59 (Average 11% per year)
Child 2: £500 deposited in Sep 2011. Current Value: £590.55 (Average 6% per year)
Child 3: £500 deposited in Sep 2011. Current Value: £660 (Average 10% per year)

Now come the questions:
1. Since no cash ISA or Junior ISA would provide such a revenue, I assume that come April 2015, these Trust Funds should not be moved over to Junior ISAs. Am I correct?
2. Considering the way they are performing, I'd like to add some money to these accounts on a monthly basis. The money that I add in, is this money taxed? ie if I receive a salary of £1000 per month for example and add in £20 per month to each fund. Is my salary reckoned as £940 - for tax purposes? Do I pay NI on this money?
3. Let's say miracles happen and I get to add a lot of money into these accounts. When my children take the money out at age 18, do they pay tax on the money? If yes, at what's the tax threshold for them at this stage?

Many many thanks in advance for all your advice.

FatherAbraham

greensmoker wrote: »

1. Since no cash ISA or Junior ISA would provide such a revenue, I assume that come April 2015, these Trust Funds should not be moved over to Junior ISAs. Am I correct?

You haven't said what the capital within the CTF is invested in. That's the important bit. You could probably get the same investment within a JISA. I can't think why you would believe that a Junior ISA can't contain the same type of investment as a CTF.

Have the conversion/transfer/unification rules been published yet? You might not need to do anything.

greensmoker wrote: »

2. Considering the way they are performing, I'd like to add some money to these accounts on a monthly basis. The money that I add in, is this money taxed? ie if I receive a salary of £1000 per month for example and add in £20 per month to each fund. Is my salary reckoned as £940 - for tax purposes? Do I pay NI on this money?

The money that you add in doesn't get taxed because you put it into a CTF. Nor is there any tax relief on it.

You'll be taxed on your salary as normal when you receive it. Subsequently paying part of it into a CTF has no effect on taxation.

You pay National Insurance on income earnt from employment. Subsequently paying it into a CTF has no effect on National Insurance.

greensmoker wrote: »

3. Let's say miracles happen and I get to add a lot of money into these accounts. When my children take the money out at age 18, do they pay tax on the money?

They pay no tax on money taken out of a CTF at 18.

Warmest regards,
FA

jimjames

greensmoker wrote: »

So this is how they've done:

Child 1: £500 deposited in Sep 2011. Current Value: £673.59 (Average 11% per year)
Child 2: £500 deposited in Sep 2011. Current Value: £590.55 (Average 6% per year)
Child 3: £500 deposited in Sep 2011. Current Value: £660 (Average 10% per year)

If all were deposited at the same time, why are the returns so different? Have you used different funds for each child?

xylophone

If all were deposited at the same time, why are the returns so different? Have you used different funds for each child?

It would seem that the OP had no involvement at all? The default position applied?

See section 2 https://www.gov.uk/child-trust-funds/overview and

http://www.pilling.com/Child-Trust-Funds-(CTFs)-HM-Revenue-and-Customs-Allocated-FAQs.htm

With regard to contributions to each CTF

"You can put up to £3,720 a year into the account - the start date for the year is the child’s birthday and the end date is the day before their next birthday.

If the £3,720 limit isn’t used in a year, you can’t carry any unused amount forward to the following year to make up the difference."

(This is different from the JISA where the "contribution year" is the same as the tax year.)

With regard to transfer of CTF to JISA

http://www.telegraph.co.uk/finance/personalfinance/savings/10534380/Child-trust-fund-savings-can-be-moved-to-Junior-Isas.html

greensmoker

Thanks for your responses:

xylophone: These CTF were set up by the government for children born between 2002 and 2011. Since we lived out the country at that time, when we moved to the UK, these CTF were automatically set up for them.

Child 1 has a CTF with Transport Friendly Society Limited
Child 2 has a CTF with Foresters
Child 3 has a CTF with Shepherds Friendly Society

Excuse my ignorance with regards to Junior ISAs, I have no real idea about them, but since my children have CTFs, they are not entitled to Junior ISAs. From April 2015 I believe we will have the choice whether to transfer to a Junior ISA or remain as a CTF.

xylophone

they are not entitled to Junior ISAs.

That is so - it is discussed in the Telegraph link.
The gov.uk link has a link to the administration of JISA which might be useful when the time comes.

aspiration_2

greensmoker wrote: »

Until a few weeks ago I had no idea about the Child Trust Funds set up by the government on behalf of my 3 children. Now that we're in the investment, MSE kind of mode, I applied to the HMRC for information. I received the information and called up all 3 fund providers.

So this is how they've done:

Child 1: £500 deposited in Sep 2011. Current Value: £673.59 (Average 11% per year)
Child 2: £500 deposited in Sep 2011. Current Value: £590.55 (Average 6% per year)
Child 3: £500 deposited in Sep 2011. Current Value: £660 (Average 10% per year)

Hi Greensmoker.

Are you saying that if we did not take the CTF cheque, then the government would invest it on behalf of the child? Seem to have done well. Also how is it £500=00 as my child only got a cheque for £250=00?

Thanks

xylophone

Are you saying that if we did not take the CTF cheque, then the government would invest it on behalf of the child?

https://www.gov.uk/child-trust-funds/child-trust-fund-vouchers

"All children eligible for a CTF account should have one. HMRC no longer issues vouchers or replacement vouchers.

Vouchers worth £250 or £50, depending on when your child became entitled, were issued to Child Benefit claimants to open an account.

The voucher was sent to the person who got Child Benefit (or the European family benefit).

HM Revenue and Customs (HMRC) opened an account for your child if one of the following applied:

the voucher wasn’t used
a local council started to look after your child before you claimed Child Benefit."

http://www.pilling.com/Child-Trust-Funds-(CTFs)-HM-Revenue-and-Customs-Allocated-FAQs.htm

"The CTF voucher the HMRC sent to you is only valid for 12 months. After the expiry date the HMRC randomly allocate all such CTFs to providers who are registered to receive these accounts."

Also how is it £500=00 as my child only got a cheque for £250=00?

http://www.thechildrensmutual.co.uk/savings/child-trust-funds/child-trust-fund-faqs/

"Unfortunately the Government has stopped age 7 payments for all children that turn 7 after 1 August 2010."

Perhaps the OP's children were eligible for the age 7 voucher?

aspiration_2

Thanks 'xylophone' for making that clear.

Unfortunately my child's £250=went in to a BS CTF account and has only made around £20 over six years. Wish I had not cashed that cheque! As the govt would have done an excellent job investing on behalf of the children.

Perhaps 'greensmoker' would care to tell us which fund houses have been used by the state, as lot of parents have asked similar questions on this forum.

greensmoker

Hi "aspiration"

I'm not sure what you're referring to by "fund houses", I just have the company that holds their CTFs.

Child 1 has a CTF with Transport Friendly Society Limited
Child 2 has a CTF with Foresters
Child 3 has a CTF with Shepherds Friendly Society

Hope that helps!

Reaper

aspiration wrote: »

Unfortunately my child's £250=went in to a BS CTF account and has only made around £20 over six years. Wish I had not cashed that cheque! As the govt would have done an excellent job investing on behalf of the children.

I suspect most people opted for cash accounts thinking it was the "safe" option. A mistake for a long term investment in my opinion.

Perhaps 'greensmoker' would care to tell us which fund houses have been used by the state, as lot of parents have asked similar questions on this forum.

The government picked them at random which is why these CTFs ended up in 3 different places.
Remember you can switch your CTF to another provider right now if you wish, though the number of providers has shrunk. Or wait until you are able to switch to a JISA when the choice will be much bigger.