£700m Child Trust Fund reminder this September
In September 2005, the government introduced a Child Trust Fund (CTF) to enable families to start building a nest egg for their children. The scheme was backdated so every child who was born between the 1st of September 2002 and the 2nd of January 2011, received at least a £250 voucher from the government with which to start a savings account.
With that kick-start from the government, parents, other family members and friends could deposit up to a maximum of £4,368 every year until the child reached his or her 18th birthday. Interest and earnings on the child’s CTF are tax-free.
Although the CTF scheme has now been closed – and superseded by Junior ISAs – the first of the children for whom the savings accounts were created will reach their 18th birthday this September. This is the date on which the child has access to the savings account, and anything subsequently paid into it, complete with the tax-free interest.
This points to a value of around £700m in CTFs due to mature this September.
Do you remember yours?
According to a story in the Mirror newspaper on the 16th of January, however, an estimated 1.8 million parents forgot or simply failed to invest the vouchers they received into the child's CTF.
For those parents that did open an account, research cited in the story above shows that one in four cannot remember the name of the provider – meaning the CTF has been forgotten.
The good news is that money in your child’s CTF will not have been forfeited. Instead, new rules introduced last month enable lenders to move this cash where they have not heard from the parent or account holder into an alternative savings account, such as an ISA, so none of the tax-free benefits are lost.
To give some idea of the potential value of even quite modest CTFs, consider the example of a child who managed to save just £10 a month and paid that into his or her savings account. By their 18th birthday, those tax-free savings would now be worth £3,610 – a bonus of around £2,000.
The bigger the savings, of course, the greater the bonus.
Investing your CTF
When your child reaches his or her 18th birthday – or by default, if you have failed to track down the provider – the CTF may be used to open an adult Individual Savings Account (ISA).
There are several types of ISA – including cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs (in which up to £4,000 a year can be saved for the purchase of a first home or towards retirement with a government bonus of 25% up to a maximum of £1,000 a year).
In the current tax year (2019/2020), you may save up to £20,000 tax-free.
How to find out your child’s CTF provider
The government website explains that you will need to contact HM Revenue & Customs (HMRC) to find out the name of your child’s CTF provider so that you may re-establish contact.
Finally, if you have grandchildren born during this period, it may be useful to forward this article on to your children.
Any data cited in this article is correct as at the time of writing.