A windfall for 18-year olds

26 October 2020 - Elizabeth O'Hanlon

There’s some good news for teenagers who turn 18 after September this year, who will now be able to withdraw money from their Child Trust Funds for the first time.
What is a Child Trust Fund?
Children born between September 2002 and January 2011 were given £250 vouchers by then Labour government to invest in a tax-free savings account (lower income families were given £500). Parents were then given a further £250 voucher when their child reached the age of seven.
The idea of the scheme was to encourage parents to save for their children’s future, so that by the time they reached 18 years old they would have a lump sum to help with things like university fees or living alone for the first time.
Parents, family and friends could also contribute to the child’s account, up to set limits. However the scheme was not the success that the government had anticipated, and it was scrapped in January 2011 by the coalition government. Since April 2015 parents have had the option to transfer their child’s Child Trust Fund into a Junior ISA, which may offer more choice and better value. In both cases the savings are sheltered from Income Tax and Capital Gains Tax. Two important points are that you can’t hold both types of account simultaneously, and the transfer is a one-way process, so it can’t be reversed to move a Junior ISA back into a Child Trust Fund.
My child is about to turn 18, what will happen now?
The first recipients of Child Trust Fund vouchers will now be turning 18 (after 1 September 2020) and can contact their fund provider to access their money for the first time. Teenagers have been able to take control of their account from the age of 16, but can only withdraw money from it once they are 18.
For those recipients who do nothing, the Child Trust Fund provider will move it into an Individual Savings Account (ISA), which is also tax-free, or roll it into another account with similar benefits.
If the teenager wants to invest their money in a different way, there are a number of different options. Junior ISAs (for people under 18) now have much higher savings limits and for those over 18, there are a wide range of adult saving opportunities such as a Lifetime ISA which is designed for 18-40 year olds and which attracts a government bonus of 25% up to £1000 per year. An independent financial adviser can explain more about the choices available and help you choose what is best for your individual circumstances.
How do I find the details of my Child Trust Fund?
Many thousands of young people may have no idea these savings exist in their name. This might be because their parents didn’t open an account, so HMRC did it on their behalf. Or their details might have been lost, or their parents didn’t update HMRC when they moved house. You can locate the lost Child Trust Fund via the gov.uk website, and you’ll need to set up a Government Gateway ID and password if you don’t have one already.

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