Today marks the first day individuals born on September 1st are able to access the money that was set aside for them by the Government’s child trust fund incentive. If you have a child born between September 2002 and January 2011 they should be entitled to receive money from the government on their 18th Birthday (subject to certain criteria).
What is a Child Trust Fund?
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 They have since been replaced by Junior ISAs, but those with existing Child Trust Fund accounts or vouchers could keep their accounts and continue to pay in.
Child Trust Funds are a long-term investment fund that allow for tax-free investments originally set up by the Government. They were introduced with the idea to help children enter into adulthood with some form of savings to be invested in expenses such as buying a car or house. The main benefit of the trust fund was that all money earned on it is completely tax-free, including capital gains and interest payments.
The first of the Child Trust Funds will mature today (1st September 2020) 18 years since the first ones opened (the last will mature in 2029). On maturity, Child Trust Funds can either be cashed out if needed, or may be reinvested into an adult ISA.
Don’t remember setting up a Child Trust Fund?
If you don’t remember physically setting up the trust fund for your child then don’t worry, they haven’t entirely missed out and your child may still be entitled to some money on their 18th Birthday.
At the time, HMRC sent the parents of qualifying children a voucher of £250 (or £500 if you were on a low income) to set up a Child Trust Fund account in the child’s name. However, if the parents didn’t do this, HMRC would have automatically set one up.
HMRC have set up an online tool to help young people find out whether they have an account and where their accounts is held. To find a ‘lost’ CTF click here.
Types of Child Trust Fund
- Cash Child Trust Fund – you are able to make deposits just as you would for a bank account, which is able to earn tax-free interest.
- Stakeholder Child Trust Fund – the savings into the account are put into a wide mix of stock market investments, each outlining their own set of rules to reduce financial risk (including how the money would gradually be moved to lower-risk investments when the child reaches 13 with 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.
- 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.
How much money am I able to invest?
If your child meets the above criteria of being born between 1st September 2002 and 2nd January 2011 and they are not at the age of being able to cash in their CTF yet, you still have time to help them to utilise its benefits.
Annually you can put up to £9,000 into the account, however if you have not used that limit previously you are not able to carry that unused amount moving forward.
In order to pay money into the account you can do so by cheque, standing order or direct debit. Additionally, payments made by the government do not count towards the £9,000.
For more information click here.
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