A Child Trust Fund is a children’s savings account made available to children born between 1 September 2002 and 2 January 2011. They have since been replaced by Junior ISAs, but those with existing Child Trust Fund accounts or vouchers can still keep their accounts and pay in. Here’s more on how a Child Trust Fund works and what you could do with the funds in your account if you have one.
What is a Child Trust Fund and who has one?
A Child Trust Fund (CTF) is a long-term tax-free saving account for children. They were designed to encourage children to become savers for their future adult life. You cannot apply for a new CTF because this government scheme is now closed but you can keep an existing CTF. CTFs were available to all children born in the UK whose parents were awarded Child Benefit between 1 September 2002 and 2 January 2011.
All money earned on the CTF is tax-free, including capital gains, interest payments and any other money earned on the account. This means all the money in the fund belongs to the account holder and none of it will be lost in tax deductions.
The first CTFs matured in September 2020, when the oldest account holders turned 18. The last CTFs will mature in 2029.
On maturity, CTFs can either be cashed in or transferred into an adult ISA.
If you have a CTF and do not inform your provider what you would like to do with the money in it when it matures, the money will then be held in a ‘protected account’ until you contact them.
Funds in a ‘protected account’ will still be tax-free, and any terms and conditions that applied to your Child Trust Fund before it matured will still apply.
Finding a lost Child Trust Fund account
Huge numbers of Child Trust Funds have been lost to the young person they were set up for. This can be because HMRC set up the account with a starter payment amount on their behalf (if the parents did not open one), or because it has been forgotten and the parents have not updated their address. The Share Foundation estimate that two million Child Trust Fund accounts are lost to the young people they were set up for.
However, lost accounts can easily be located. You can find out where a lost Child Trust Fund is, even if you don’t know the provider.
Go to the GOV.uk website and fill in the HM Revenue and Customs (HMRC) form. This tells HMRC to check where the account was originally opened. You’ll need a Government Gateway user ID and password. If you don’t have a user ID, you can create one when you fill in the online form.
HMRC will send you details of the Child Trust Fund provider by post within three weeks of receiving your request.
How a Child Trust Fund works
If you already have a CTF you can continue to add up to £9,000 per year to your CTF account. There is no tax to pay on the CTF income or gains. The money belongs to the child and they can take it out when they are 18.
By contacting the CTF provider they can take control of the account when they are 16 and can switch providers or transfer to a Junior ISA.
When CTFs became available, HMRC sent the parents or guardians of qualifying children a starting payment voucher of £250 (or £500 if you were on a low income). This voucher could then be used to set up a Child Trust Fund account in the child’s name.
Types of Child Trust Fund
There were three types of account that could be opened with the voucher:
Cash Child Trust Fund – where you can make deposits just as you would for a bank or building society account, which can earn tax-free interest.
Stakeholder Child Trust Fund – where the savings in the account are put into a wide mix of stock market investments, with a set of rules to reduce financial risk (including that the money would gradually be moved to lower-risk investments when the child reaches 13 and a cap on the annual charge). Stakeholder Child Trust Funds are charged based on the value of the fund and capped at a maximum charge of 1.5% a year.
A child will have a stakeholder Child Trust Fund account, opened by HMRC on the child’s behalf, if their parent(s) failed to open a Child Trust Fund account within a year of receiving a payment voucher.
Shares-based Child Trust Fund – where most or all the money is invested in shares, but without the protections of a stakeholder account. The savings in the account could be put onto the stock market via an investment fund of your choice or into your own investments.
Adding money to the account and family member payments to a Child Trust Fund
Anyone can pay money into a CTF, including parents, family members and friends. This is up to a total limit of £9,000 (2021/22) each year, with the child’s birthday considered the start of the year.
The amount of money in a child’s Child Trust Fund does not affect any benefits or tax credits the child’s parent/guardian receives.
Child Trust Funds for Children in Care
Some children looked after by local authorities have a Child Trust Fund account set up on their behalf. If you have been in the care of a local authority and were born between 1 September 2002 and 2 January 2011, you could have a Child Trust Fund account.
If you want to find your Child Trust Fund, your first option is to fill in the HMRC form on the Gov.uk website.
However, if you are having trouble with the HMRC site, you can contact The Share Foundation for help.
The Share Foundation acts as the registered contact for Child Trust Fund accounts for children and young people who are care-experienced and manages them for the child or young person. The Share Foundation run both the Child Trust Fund and the Junior ISA schemes for children and young people in care.
The Share Foundation will write to the account holder about two months before they turn 16, telling them how to become the registered contact for their Child Trust Fund account.
What about Child Trust Funds and Young People with Disabilities?
Some young people with a disability might not have the mental capacity to manage the money in their Child Trust Fund.
If your child does not have mental capacity, then you as their parent(s)/ carer(s) will need to apply to the Court of Protection to act as your child’s Deputy. A Deputy is someone, usually a family member, who is appointed by the court to manage and make day-to-day decisions about someone’s finances. Without this, you will not be able to manage the account when your child turns 18, as they legally become an adult and the money belongs to them.
At the moment, applying to the Court of Protection can be expensive, as there is a court fee of £365, and legal costs, if a solicitor is used. There may also be delays to the process due to the coronavirus pandemic. Be sure to seek legal advice if you want to apply to the Court of Protection so you understand all of the options. Solicitors might provide you with a free initial discussion.
However, the Government announced on 1 December 2020 that all parents or guardians of children or young people who lack mental capacity can ask for court fees to be waived or refunded when seeking access to a Child Trust Fund. Full details and qualifying criteria can be found on the Gov.uk website.
If you want to change the Child Trust Fund account that HMRC set up for you
If HMRC set up a Child Trust Fund account for your child, you can change to a Child Trust Fund provider or account of your choice. You can do this at any time.
Be sure to ask providers about any fees charged for running the account. You should also ask about making further contributions. You can pay as little as £10 into a stakeholder account but some providers may require larger payments for other accounts.
If you’re looking to change your Child Trust Fund provider, do also be wary of scams, which are designed to get hold of your money and can come in many forms.
If you need any assistance, please call the Child Trust Fund Helpline on 0845 302 1470.
What is a Junior ISA and should I switch my Child Trust Fund into one?
An alternative to switching Child Trust Fund providers is to switch your Child Trust Fund into a Junior ISA.
However, if you have a Child Trust Fund you cannot have a Junior ISA at the same time. But, you can transfer your Child Trust Fund into a Junior ISA.
You don’t have to transfer a Child Trust Fund into a Junior ISA. However, a Junior ISA can work out better for your child’s savings in the long term.
Junior ISAs generally offer more choice and better value, whether it’s higher interest rates on their cash accounts or lower annual fund management charges.
You cannot transfer back to a Child Trust Fund once you’ve switched to a Junior ISA so be sure to check before making the jump that you’re getting the best possible deal in terms of investment returns and fees.
Looking for more information on Junior ISAs? Take a look at our Junior ISAs page.
I’m 18 or over and have a Child Trust Fund. What should I do with the money in it?
If you’re 18 years old or over, you can access the money in your Child Trust Fund account. It’s your money, and it’s up to you what you would like to do with it.
One option to consider is to continue saving your money. This could be by, for example, transferring your money into an adult savings account. As your savings build up, they’ll grow faster, so your money makes money.
You might want to save regularly and build up your fund for a deposit towards a property purchase or a rental deposit.
The money in your Child Trust Fund could also provide an excellent foundation for building a ‘rainy day fund’ to make sure you have money available for emergencies or sudden expenses.
Putting money away now means you’re covered for an expense you didn’t see coming, reducing your need to borrow. For example, if you were to suddenly lose your job, need a new phone, or need emergency dental treatment, that’s when a rainy day fund would become handy!