Coronavirus is shifting our perspective on many different levels but some concerns remain the same and as 'back to school' time is gradually reintroduced our thoughts turn to practical matters such as finances for our children.
Enter Child Trust Funds - the first accounts are maturing now (September 2020).
This was introduced (between 1 September 2002 and 2 January 2011 – replaced by Junior ISAs) to encourage parents to save for their kids' future, the ensuing silence on their fate has meant that a lot of parents and indeed beneficiaries have forgotten or lost track, so just to recap.
Tax-free savings account belongs to the child, if yours is turning 18 this month – you can rejoice now. However, if any of your offspring turn 18 between now and 2029 – they are n for the windfall. This will depend on the contributions and the investment strategy.
Parents were sent £250 vouchers by the HMRC (£500 for low income parents) and this sum was used to set up the CTF account in the child's name and invested in one of the following ways:
Cash CTF – akin to a deposit account, earning tax-free interest
Shares CTF: invested into stock markets
Stakeholder CTF: invested into stocks & shares but to safeguard the savings, riskiness of these portfolios is gradually reducing from child's 13th birthday. The charges are capped at 1.5% per annum. This type of account might have been opened by HMRC if the parents did not open any type of CTF within a year of obtaining the voucher.
On maturity of these funds, your child can either withdraw the cash or it may be transferred in to an adult ISA. If, for whatever reason the funds are not used, don't panic – the money will be held in a protected account until such time that your child is ready.
It is estimated that some 2 million CTFs have been lost to people whom they were set up for, maybe because it was HMRC who set it up, the parents have forgotten it exists or have not updated their address – the reasons are many, however fret not, these accounts are not really lost and to locate them is straightforward.
Currently (2020/21) parents, family members or friends can collectively pay up to £9,000 each year, until the recipient turns 18.
Junior ISA – CTF can be switched to Junior ISA (but can't have both) in the long term JISA is better value with more choice and lower charges. We are happy to advise on best course of action.
If you are the lucky recipient of the CTF payout you can either take the money and run or, much more sensibly, make your money go further and invest it into an adult ISA to build up your reserve.
Whether you are a parent, guardian or indeed a recipient of CTF and unsure of your options please contact us and we will explain all your options and help with dilemmas such as spend (university fees?) or save (first home deposit?) and see how we can make your money go further.
Silvia Johnson BSc(Hons) DipPFS EFA CertCII (MP) is a Director & Independent Financial Adviser at Royale Thames Wealth Ltd.
020 8720 7249 / 07908 109 741
Royale Thames Wealth Ltd is an Appointed Representative of New Leaf Distribution Ltd which is authorised and regulated by Financial Conduct Authority number 460421. The value of your investment may go up as well as down and the value is not guaranteed. Past performance is not a guarantee of future performance. Wills and Estate Planning are not regulated by the FCA.