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UK Child Savings Accounts

Most adults want to give children a good financial head start in life and with the rising cost of education, it is becoming increasingly important for children to have savings to fall back on. The earlier you start saving, the better placed you and your child will be for the future.

When choosing suitable savings plans or investments for your child, many of the same considerations apply as for adult investors.

Timescale - find out if the investment is suitable for the timescale you require, short term or long term.
Accessibility - if you think the money may be needed at short notice, make sure there are no withdrawal penalties.
Risk - if the money is needed to meet an important bill, carefully consider the risk of the investment.
Charges - even if you are saving only a modest amount, it is important to ensure that you are not paying excessive charges.

The minimum investment into a child savings account is normally £1, and anyone opening an account should certainly enquire about the starter pack, bonus gift, discount pack or other starter offers available from the chosen savings branch. Most child savings accounts are usually cash deposits and not include certain features of an adult current account such as a cheque book and debit card.

Tax Issues

Children are allowed a certain amount of income before they start paying tax. They are entitled to the same personal allowance as adults. So, for the tax year 2005-2006, they can claim back the tax on their savings income if their total taxable income is less than £4,895.

However, if the savings have been given by a parent, the parent will be taxed on income from the child's account where the income or interest exceeds £100 gross taxable income a year. When that is the case the whole of the income from the gifts is normally taxed as that parent's income. The child is unable get back any tax on that income. The £100 rule applies separately to each parent. This rule does not apply to the income that is tax free such as income in a Child Trust Fund account or on a tax-free savings product from a friendly society.

If the child's total income, including interest, is expected to be less than the personal allowance of £4,895, interest can be paid 'gross' (that is, without tax taken off) until 5 April after their 16th birthday. To arrange for interest to be paid gross a parent or guardian must complete form Getting your interest without tax taken off (R85) with the child's details, sign it on his or her behalf and give it to the bank or building society.

Child Trust Funds
The Government has launched a 'child trust fund' scheme, a tax-free savings account into which Government 'endowments' are paid at birth and possibly again at the age of 7. Government contributions are £250 at birth and up to £500 for children in lower-income families. There is no need to claim the CTF vouchers - every child born since September 1, 2002 and whose parent(s) receives child benefit is eligible.

Vouchers for £250 will automatically be sent out to parents following completion of a Child Benefit form. There are currently about 30 Child Trust Fund providers although this may well grow in the future. For those with children born between 1/9/2002 and 6/4/2005, please note that interest will only accrue after April 6th, when your account has been set up. We are currently preparing a guide on Child Trust Funds, so do return to these pages soon (please enter your email address on the left for changes to this page). Our advice is to keep your voucher safe for a month or two, until you have thoroughly checked out the CTF offerings. Don't leave it for too long - after 12 months the government will automatically invest the voucher on your child's behalf. In the meantime just look through and note the current offers:

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