In September 2002 the government launched the Child Trust Fund (CTF) scheme, aimed at allowing children to save money for when they reached 18. It was closed and replaced with the more efficient Junior ISA in 2011, but many of these CTF accounts remain active, and all of them contain at least £250 or more.

Understanding Child Trust Fund

A Child Trust Fund is a type of trust that was automatically created for any child born between 2002 and 2011. The government paid £500 into them, £250 at creation and £250 when the child turned seven. Family and friends were able to pay into the CTF account. The CTF scheme was abolished in 2011, although any existing CTFs were allowed to continue and the government makes no further payments into them.

Any money held in a CTF is completely exempt from income tax and capital gains tax, but the money belongs to the child and cannot be accessed until they turn 16.

As the scheme was launched in 2002, this means children born that year can now access the money in the account from September 2018 onwards. If you are unsure if you have one, ask HMRC by filling in this form (which requires you to have a Government Gateway user ID and password).

Transferring to a Junior ISA

When the scheme was abolished in 2011, people were instead encouraged to use a Junior ISA. CTF and Junior ISA are almost identical – in the 2018-2019 tax year, the savings limit for both CTF and Junior ISA is £4,260; but Junior ISA offers better rates, lower charges and greater investment choice according to experts.  

To transfer the money out of a CTF, you will need to contact a Junior ISA provider and complete a transfer form. Junior ISA is a tax-free savings account for children until their 18th birthday; then it gets converted into an adult ISA.

Personal tax advice

Tax is a complicated subject and like adults, children are liable for tax on savings. Junior ISA is a tax-efficient way to make sure their savings are tax-free.

For adults, being tax efficient is also important. You can minimise your tax bill legitimately through a number of ways such as:

• Claiming your tax-deductible expenses if you’re self-employed
• Taking advantage of the rent a room relief that can see you receive up to £7,500 in rent from a lodger tax free,
• Transferring marriage allowance from a lower-earning partner to a higher-earning partner.

Everyone has a different tax situation, so talk to an independent personal tax adviser who can give you solid and professional tax advice today.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.