So, the child trust fund details have been announced. At last. I suppose October 28 could be loosely described as falling in the “summer of 2003” (when details were promised).
If we forget about the £250 Government payment (£500 in some cases) and the future payment at age seven, we can concentrate on where advisers may be likely to become a bit excited – in the area of family and friends being able to contribute up to £1,200 a year to boost the fund. This could result in advisers being called upon to give advice to the individual with “parental responsibility” on how this investment is to be made.
So far so good – an investment and a new business opportunity. Let us look a little bit closer at this “regular” investment and see whether it is actually any sort of give away at all. First, if any sort of gift is made by anyone to a child (apart from a parent), then the child's personal allowance is likely to mean that no income tax is paid on any income arising to the resultant fund. Also, any capital gain realised would be likely to fall within the capital gains tax annual exemption (£7,900 of gain for this year – what will it be by the time the gain is actually realised?).
If more than one child is involved as beneficiaries of the trust, then some discretion could be exercised as to which of the children received benefit based on the concept of which child deserved or needed the money.
The child trust fund additional payments do become interesting when it is the parent(s) who are making the payments as it has been stated that any income arising will not count towards the “parental settlement” limit of £100 a year.
If payments could start now, at current interest rates, £1,200 into an interest-bearing account would probably achieve gross, about £60, so it would be in the second year that the amount of £100 would be exceeded. (Payments cannot actually start until 2005.) It can be seen, therefore, that parental use of the regular payment facility into the child trust fund would be useful but perhaps anyone other than a parent who wishes to save for a child, perhaps spurred on by the introduction of the child trust fund, should invest outside of the new “vehicles” to give more flexibility as to when the money can actually become available to the child.
I am concerned about the Revenue saying it will open a stakeholder account for the child if no account has been opened by the individual with parental responsibility within one year of the issue of the relevant voucher. Will the Revenue take the decision as to which account to place the £250 or £500 in? Will it look at the quality of the fund manager? How far are the charges below the maximum permitted? Is the full 60 per cent equity allowance taken up, etc? An interesting one. Is the Revenue to be regulated by the FSA as giving investment advice?
Brian Lawless is managing director of Sofa