This month will see the first Child Trust Funds (CTFs) turn 18 and thus reaching maturity. This means that many 18-year olds, some of whom will be heading off to university, others potentially embarking on a gap year, are about to receive full, legal entitlement over their plans.
For those lucky enough to be born between 1 September 2002 and 2 January 2011 they were enrolled in a CTF, which has since been replaced with a Junior ISA (JISA). The CTF was set up by the government to kickstart good saving habits, with every account credited with up to £500. Around 25% of these were automatically set up by HMRC if parents did not set up the account before the child’s first birthday. This has meant that there are currently 6 million young people across the UK with a CTF, however, research suggests that at least 1 million of them have either lost track or are not aware that they have one registered to their name. This means that you/your child could have a pot worth £1,000, or potentially even more if parents added additional contributions. If you think your child was entitled to a CTF they can track it here
What happens now?
If the legal owner does nothing then;
- If it’s in a stocks & shares (investment) CTF, it’ll be converted to an adult stocks & shares ISA.
- If it’s in a cash CTF, it’ll be converted to an adult cash ISA.
What can I do with the cash?
As stated above, if the legal owner leaves the CTF as is, it will convert in to one of two ISAs. Ultimately the proceeds of the CTF are up to the decision of the legal owner. Here we suggest some options.
- Put it towards a first home
Consider opening a Lifetime ISA account. This is a special tax-free savings account which gives you a 25% bonus on up to £4,000 saved a year (so a max £1,000/year bonus). You can then use this towards buying your first home.
- Invest it for a future need.
As the CTF will automatically transfer into an ISA, consider making this a Stocks and Shares ISA and investing it
- Move it to a savings account.
If you wish to access the funds within two years, place the funds into an instant access cash savings account.
If you wish to discuss the best option regarding the proceeds of a Child Trust Fund, please contact your adviser.
For expert advice book your free, no-obligation meeting today.
Did you miss out on the Child Trust Fund? Why not open a Junior ISA for a loved one? You can start with as little as £10 a month. Junior ISAs attract no tax on the earnings up and you are now eligible to save up to £9,000 per year they are a great vehicle to start your young one’s savings journey. Contact your adviser today.