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In an email you sent me today, CTFs are recommended as a good way of saving tax.
My grandson was born in September of 2002 and so received £250 from the government, later increased to £500 as his parents were on low incomes. As of today, this £500 is now worth approximately £420. How can these be considered a good investment, tax benefits or not?
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0There have been some sensational - and in my view downright irresponsible - media stories about CTFs recently. In my view you're best off ignoring them (apart from when the BBC interview David Kuo). CTFs are on balance a Good Thing, and people shouldn't be scared off them.
The value of investments fluctuates. It's very easy to panic during the troughs, but it's irrational. There's plenty of time yet for your grandson's fund to recover and do well. Furthermore, if you can find the money to add to the fund now (while shares are low in price), you stand a good chance of making the most of any future market recovery. A steady drip feed into the fund (eg monthly) is a pretty good way of doing this.
Your grandson won't be cashing in his trust fund for another 12 years. So the value of his fund today is pretty well irrelevent. If anyone can afford not to worry about the state of their investments at the moment, it's him!
Posted on 09 December 2008 |
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879Don't worry about the trough that shares are in now. They are a long term investment and he has 12 years to go. There will be more troughs to cross before then but in between there will also be peaks.
It is the result when he is 18 that counts.
Posted on 09 December 2008 | Love 0 loves
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0Might be wrong but I think most CTFs involved in equity investment are lifestyle type funds which should eliminate or certainly reduce any concerns on stock market volatility.
Posted on 10 December 2008 | Love 0 loves
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0There are certainly tax advantages, peepobaby. The CTF won't be subject to IHT if the parent dies before the child reaches 18. The money won't be subject to income tax or CGT, and won't count against the parents' tax free allowances or affect any benefits or tax credits they might receive.
Yes, there's no choice on exit dates, though reinvestment in other wrappers would of course be possible if the receipient didn't want to blow it all on whatever the young people are buying these days.
The child has some say in how their fund is managed after they're 16 - this is a valuable educational experience. With any luck it might get a few more interested in the savings and investment habit.
Obviously there's an element of risk if you go for an equity based CTF, and hopefully corresponding rewards in the long term though (obviously) these aren't guaranteed. I believe cash-only CTFs are available for parents who can't handle seeing the value of investments fall as well as rise.
Posted on 10 December 2008 | Love 0 loves
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