The tax problem is compounded because of the inequality between those children that have Child Trust Funds (CTF) and those that don’t. The first batch of CTF babies turned five in September, 2007 and their parents can save up to GBP1,200 every year for 18 years tax-free.
If children’s parents are saving regularly on their behalf then the parents will become liable for income tax on the interest earned from their children’s savings once the income in any tax year exceeds GBP100.
The two-tier savings regime may also deter parents from contributing any additional savings to a CTF if they have an older child who does not qualify, as it would seem unfair to treat the children differently.
Matthew Carter, director for savings at Nationwide, said: We are encouraged by the Government’s commitment to CTFs, however they are ignoring 10 million other children who are not eligible by not addressing this tax inequality. Having seen children’s savings balances increase by over 90% in the last six years, and with the average interest payment on children’s accounts at GBP924 this year, children and their parents are saving more and could find they will have to start paying tax on the interest earned.
