Child trust fund and tax credits

The Government has announced that children born after 31 December 2010 will no longer qualify for a child trust fund account. Children born between 1 August 2010 and 31 December 2010 will receive a voucher worth £50 instead of £250 as previously, with a top-up of £50 for those on low incomes. The extra £250 currently paid on a child’s seventh birthday will cease to be paid where a birthday falls after 31 July this year.

Extensive changes to the tax credits system will also be made from 6 April 2011. The child element of the child tax credit (CTC) will be increased by £150 above the normal inflation increase, but the baby element (£545) will stop. The rate of withdrawal for all tax credits is to be increased to 41p in the pound. Presently, the withdrawal rate is generally 39p, but only 6.67p in the pound for the family element of CTC. In addition, the level at which the family element of CTC is withdrawn is to be reduced from £50,000 to £40,000. The exact income level at which no tax credits will be paid depends on personal circumstances, but the Government’s intention is that people with incomes of over £50,000 should not in general be entitled to any CTC or working tax credit.