If your child was born between 01/09/2002 and 02/01/2011 then they may have been eligible for a Child Trust Fund (CTF). CTFs started to mature from September 2020 when the oldest account holders turned 18, so we thought it might be timely to take a closer look and see how it may affect some of the families we look after here at bdb
What is a CTF?
A CTF is a Government-backed tax-free savings account for children (typically cash or stocks & shares), which was set up with a qualifying voucher from HMRC. The Government made contributions into it at certain ages (since stopped) alongside any other contributions you (or others) may have made on behalf of your child. Generally speaking, any UK resident child who was born between the relevant dates and for whom child benefit was in payment was eligible. It might be worth checking to see if your child has a CTF that you are unaware of. It can be done online via HMRC and only takes a few moments.
CTFs are allowed to grow free from tax much like an ISA and therefore were attractive at least from a tax perspective when compared with other forms of investing on behalf of children.
New CTF accounts could not be opened after 02/01/2011 when they were replaced by junior Individual Savings Accounts (JISAs). If a CTF is still held, funds can continue to be added into it but you cannot hold both types of accounts.
Generally, a JISA is preferable to a CTF despite sharing the same tax advantages. This is primarily due to the range of investment options available within the JISA space from the more developed nature of this particular product market. Fortunately, a CTF can be transferred to a JISA and still retain its tax benefits which can help from the perspective of simplifying financial administration and accessing a wider universe of investment options
What happens at ages 16-18?
The child will have control of the account (both CTFs and JISAs) at age 16 and full access to the account at age 18 whereby they can spend or invest however they wish.
At age 18, if no action is taken, a cash CTF will roll into an adult cash ISA and a stocks & shares CTF will roll into an adult stocks & shares ISA subject to the provider’s ISA authorisation status (in the event of no authorisation it will transfer to an HMRC protected account until it is transferred).
What options are available upon maturity?
The funds can be used for whatever your child wishes which may include using it for a first home (or investing in a Lifetime ISA), investing it (if previously held as a cash account) or spending it depending on the circumstances.
The key factor is that the funds belong to your child and it may represent a considerable amount of money for them to spend how they wish. We believe that dialogue surrounding money is important to have with children. At bdb, we offer free financial planning to the children of our clients. They have found this help to be invaluable in improving the personal finance knowledge in their young adults from an early age.
Get in contact if you would like to discuss this with us, we are always happy to have these conversations. Do let us know if you uncover a CTF you had forgotten about. We love these nice surprises!