This piece first appeared in BBC Parenting in April 2004
The text here may not be identical to the published text

 

Building up trust

Government help with savings for children

Investing for your kids has been given a boost by the Government. Every child born on 1 September 2002 or later will have a special Child Trust Fund opened for them by April 2005. The government will put in £250 and there is an extra £250 for children in families in the bottom third of incomes. The Government will put in another amount on the child’s seventh birthday – no announcement yet on how much but expect another £250.

Because the scheme is backdated to 1 September 2002 and the fund itself will not be available until April 2005 the Government is giving an extra amount to children born between those dates – up to £27 more to allow for the interest their money could have earned in that time.

Parents, relatives, friends - indeed anyone - can add more money up to £1200 a year in total. All the money in the fund grows completely free of tax. The child will be given the fund on their 18th birthday. The main choice parents have to make is how the money will be invested. Will it be in a savings account growing by perhaps 4 per cent a year? Or will you risk some or all of it by investing in shares quoted on the stockmarket?

The Government says it expects money invested in shares to grow by around 7 per cent a year. Over the last 18 years money invested in shares has grown by 6.6 per cent a year overall despite three bad years recently when the price of shares fell by around a half. Money invested on the stockmarket will also have fees deducted – the government says it will allow the companies that manage it to take 1.5 per cent a year themselves. Those charges will not normally apply to money saved in cash.

To give some examples, if parents contribute nothing then the Government’s contribution will grow to about £891 by the age of 18. If parents put in the full £1200 a year then the lucky child will have close on £33,000. That might even be enough to pay for university! Those figures assume that investments will grow by 4 per cent a year after any charges.

Kids born before 1 September 2002 will not get the free cash from the Chancellor. But the Government may allow them to have a Child Trust Fund so parents and others could contribute up to £1200 a year. A decision is expected soon.

NEWS

Tax credits go up in April. Nine out of ten families can claim child tax credit which is £545 year and many middle income families can get more – including help with childcare costs. You can check your entitlement – and apply – at the Inland Revenue website www.inlandrevenue.gov.uk click on ‘tax credits’.

Interest rates went up in February but a lot of banks and building societies did not put up the rate they pay to savers. So check that any money you have saved up for your children is earning a reasonable return. You will get the best rates in on-line accounts you access through your computer.

QUESTIONS

Q. I’m a mum of two and thinking about returning to work as a self-employed costume designer. My youngest child will have to attend nursery while I’m working. Is it possible to claim tax relief on her nursery fees?

A. You cannot get tax relief on the cost of childcare, even if you are self-employed. However, you may be able to claim help with the cost through the Working Tax Credit. The calculations depend on your hours of work, the cost of the care, how many children, and your income – joint income if you have a partner. You may be able to get some help with nursery fees with an income or joint income of more than £34,500.

Q. Since the beginning of the year I have been inundated with mail inviting me to sign up for a new credit card or apply for a loan. Is there any way I can stop companies sending me this junk mail?

A. You can stop junk mail by signing up for the Mailing Preference Service. Easiest way is to log on to www.mpsonline.org.uk and register your details. Or write to Mailing Preference Service, DMA House, 70 Margaret Street, London W1W 8SS or call 020 7291 3310. They also run a telephone and fax service to stop those unwanted phone calls or faxes.

April 2004


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