The first Child Trust Funds (CTFs) have reached maturity, but many have been overlooked.
The first CTFs reached their maturity date on 1 September 2020, when their owners celebrated their 18th birthdays. The life span of the CTF itself, however, is not quite 18 years, as they were launched in January 2005 for any child born on or after 1 September 2002 – hence this year’s first maturities.
CTFs started life with a government payment of at least £250 and there was a further £250 for children with CTFs in the first wave who reached the age of seven before 1 August 2010. Parents and others could contribute to the accounts – up to the annual limits. Children of families on lower incomes were given up to £500 for each payment on a means-tested basis.
All government payments ended on 2 January 2011, and no new CTFs were available after that date. But in the six years from 2005 to 2011, around 6.3 million CTFs were set up. However, HMRC had to create nearly 30% of these CTFs, where a child’s parents or guardians had failed to open an account within 12 months of receiving the government payment voucher.
The default opening process means that many people have lost track of CTFs, particularly the accounts that just received the £250 payment. This has prompted HMRC to set up an online tracing tool as part of its programme to handle maturities which are currently running at about 55,000 per month.
A newly adult owner of a CTF has three options when they reach the age of 18:
- Withdraw the CTF’s value.
- Invest all or part of the CTF’s value in an ISA, without the payment counting towards the normal subscription limits.
- Do nothing, in which case the CTF fund will be transferred to a ‘protected account’ where it will continue to enjoy freedom from UK income tax and capital gains tax.
- CTFs were effectively replaced by Junior ISAs (JISAs) from November 2011 and there were no more government contributions. JISAs offer the same tax benefits as CTFs and currently have a maximum contribution level of £9,000 per tax year. For advice on JISAs and maturing CTFs, please contact us. These plans may have started out for minors, but their rules mean they are not child’s play.
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