Child Trust Fund changes and you

The coalition government has announced it will scrap payments in Child Trust Funds from January, following a big reduction in the amounts from August.

From 1 August, payments at birth have been reduced from £250 to £50 for most families, and £500 to £100 for families with an annual household income of less than £16,190. Payments when children reach the age of seven will stop.

All payments will be stopped from 1 January 2011.

So how will the changes affect you and your family?

How do Child Trust Funds work?

The government provided a £250 voucher in the child's first year and the same amount again when a child reaches the age of seven, to be invested on the child's behalf until he or she turns 18.

If the child is born into a family where the annual household income is £16,190 or less, then the initial payment was £500.

Parents, family and friends can contribute up to £1,200 a year to the account, with no tax to pay on any income or gains in the account. This money is often invested in shares.

What happens to my child's existing Child Trust Fund account?

If it has already been opened, it will continue as usual - and the child will not be able to touch the money until the age of 18.

The tax-free element will continue. No tax is paid on any income or gains in the account.

Family and friends will still be able to add up to £1,200 a year into the account.

The government will not withdraw the money it has already put in the account.

As a new parent, I have received a voucher but not used it. What can I do?

You can still use the voucher up to the expiry date which is shown on it.

Children have benefited from the investment since 2002

If you do not, then HM Revenue and Customs, as it does at present, will open an account for your child and then inform you of the details.

If you have lost the voucher, you can apply for a replacement on the Child Trust Fund website.

Parents can also move these accounts to other providers in order to get better returns.

I am pregnant, will I still get a voucher when my child is born?

If your child was born before 2 August, then you will get the full amount - £250 for most families and £500 for those with a household income of less than £16,190.

If he or she is born between 2 August and 1 January, 2011, then the amount will fall from £250 to £50 or from £500 to £100 respectively.

If the child is born after 1 January, then nothing will come from the government.

My child is turning seven. Will he or she get the top-up?

Children got an identical amount at the age of seven as they did when they were born.

These top-up payments ended from 1 August, so any children who turn seven after that date will not receive that amount for their fund.

What about other payments?

Since April 2010, a child eligible for Disability Living Allowance also gets a yearly top-up of £100 in their Child Trust Fund, or £200 if the child has a severe disability.

The coalition government said these payments will end from 2011-12 onwards, although the money will go towards assistance for respite care.

Additional payments that become due because of a relevant tax credit award in 2009/10, whether or not the award is finalised yet, will be paid.