Does your child have a forgotten nest egg?

Some may be unaware, or have lost the details, of their Child Trust Funds that contain free money from the government.

| 5 min read

Child Trust Funds (CTFs) were once a popular way to put aside money for children, building on an initial contribution made by the government. They were introduced in April 2005 to encourage long-term saving and give all children a financial boost. Accounts started ‘maturing’ from September 2020 as the first children eligible turned 18, but many account owners and their parents may be unaware of their entitlement to their modest nest egg.

What are CTFs?

When CTFs were introduced the government sent vouchers to parents of between £250 and £500 to give accounts a head start, and family and friends could top up the account if they wished.

Around 6.3million child trust funds (CTF) have been set-up, around 40% of which were opened by the government on parents’ behalf when vouchers went unused – so many of these children could have a hidden windfall waiting for them.

In other cases, accounts were topped up frequently, with parents and others adding money up to the limit each year. The annual contribution limit has risen over the years and is now £9,000, the same as Junior ISAs. A child cannot have both types of account.

There were three CTF options available:

Cash: Similar to a Cash ISA, with interest earned on savings paid tax-free.

Stakeholder: Specific stock market funds with charges capped at 1.5% a year and invested in a mix of investments.

Shares based: A ‘DIY’ choice of investments.

New CTFs were discontinued in January 2011, replaced by Junior ISAs.

Who was eligible?

Child Trust Funds were available to children born between 1 September 2002 and 2 January 2011. The Government initially provided families with a £250 voucher when their child was born and another £250 upon reaching the age of seven. Children from lower-income backgrounds were given £1,000 in total.

Before it was scrapped, the scheme was scaled back. Children born between August 2010 and January 2011 received only a £50 voucher or £100 if from a lower-income family. Payments to children aged seven also stopped in August 2010.

Much of the ‘free’ money in CTFs will therefore be £500 per account or less, plus interest or investment returns. However, some children could have a fund worth at least £1,000. If this was invested in stocks and shares it would likely have risen quite significantly by now and represent a decent-sized nest egg.

What happens to a CTF at 18?

Shortly before a child reaches 18, the CTF provider should write to them stating the value of the account and the maturity options: Taking the money as cash, investing it in an ISA or a mix of both.

Those who do not respond should have their funds rolled over into either an ISA or to a ‘Matured CTF’ until the holder gets in touch. Both are tax-free accounts and can be transferred to another ISA provider without affecting the usual adult ISA allowance of £20,000 per year.

How do I find out if I or my child has a Child Trust Fund?

You should have some paperwork from your provider. However, if this has been lost, the easiest way to track it down is to visit HMRC's website and fill out a form. You will need a ‘government gateway’ ID. HMRC should get back to you within 3 weeks of your application.

There is also some more detailed information on CTFs on the Money Advice Service website here.

What to do with Child Trust Funds

In 2015 the government made it possible for people with CTFs to transfer to more flexible Junior ISAs.

There are a number of reasons why it may be a good idea to switch:

  • There are more Junior ISA options in the market to choose from
  • For those wanting cash accounts interest rates are generally higher in Junior Cash ISAs
  • Some Child Trust Funds don't accept new investments
  • For stock market investments Junior Stocks and Shares ISAs are often significantly cheaper than CTF counterparts
  • Junior Stocks and Shares ISAs such as the Charles Stanley Direct Junior ISA have a far wider choice of investments

Before transferring to a Junior ISA, it's important to check the value and if there are any exit fees or guarantees that might be lost if you switch away. Once you have done that you will need to choose a new Junior ISA provider.

The Charles Stanley Direct Stocks and Shares Junior ISA

You can transfer a Child Trust Fund or an existing Junior ISA to our Stocks and Shares Junior ISA. Just let us know who your current provider is, and we’ll take care of the rest.

You can also start a new Charles Stanley Direct Junior Stocks and Shares ISA for your child if they are a UK resident, under 18 years old, and don’t already have a Child Trust Fund or an (investment) Junior Stocks and Shares ISA elsewhere.

Full details of the Charles Stanley Direct Junior Stocks & Shares ISA, including charges, can be found here.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Does your child have a forgotten nest egg?

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The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. The tax treatment of pensions depends on individual circumstances and is subject to change in future. This article is solely for information purposes and does not constitute advice or a personal recommendation.

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