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| There is a germ of a good idea
here. But, as always when politics meets the City, the detailed
execution has produced an expensive nonsense. We suggest you
don't bother. |
It works like this
The government gives little Johnny £250. It is invested for him,
free of tax. At age 16 he gets control of (but not access to) these
savings. At age 18 it is his - he can spend it.
If you like, as a parent you can set up a Child Trust
Fund (CTF). The government's £250 goes into this Fund. A further
£250 is promised when little Johnny is seven. If you are receiving
Child Tax Credit both these grants are doubled.
In addition, you may contribute up to £1,200 per year
yourself. The whole lot is subject to the same vesting rules as
the £500. All investment returns withi the fund are free of tax.
So, at age 18 little Johnny could get up to 18 times
£1,200 +£500 = £22,100 + investment returns, with no strings.
And we know he will invest it prudently for his pension, don't we?
So I'd better set up a CTF to
get the first £250?
Hold on a minute. If you do nothing the government will stick the
£250 into a stakeholder for little Johnny, so he won't lose out.
So the question is, do you want to invest up to £1,200
a year into what is effectively an ISA
held in trust for your child? Well, you might, except for one thing:
Fees!
Most CTFs on offer are charging 1.5% per annum for what are effectively
trackers
(which you should be able to get for 0.3% per annum). So you are
giving away 1.2% per annum for the tax breaks. This only begins
to make sense if you are, and likely to remain for 18 years, a higher
rate taxpayer and you pay capital gains tax (ie you
make gains each year in excess of your CGT limit - £9,200 or £18,400
for a couple in 2007/08). Further, you would only do it if you were
already making your full ISA investment of £7,200 per person
(£14,400 per couple).
If you are in that position you are quite well off.
And if you are quite well off why do you want to be fiddling around
with a special investment wrapper with a piddling amount going in
each year, which could cause you grief in 18 years time?
(Suppose your child has a personal situation which
easy money is going to harm? Would you be happy if your 18-year-old
spent your money on going to art school when you wanted her to become
an accountant - or vice versa? Do you remember what you were like
when you were 18?)
And do you think, over an 18 year period, any government
is going to be able to resist putting some restrictions on what
the final sum is used for? And/or reduce the benefits?
Isn't life complicated enough?
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