Saving for children

James Stabler

Origen Private Client Adviser

Many people across the UK benefited from Child Trust Funds (CTFs) which were launched in 1st September 2002. The Government estimates that approximately 800,000 CTFs will mature each year from this September when the owners reach the age of 18.

Understanding Child Trust Funds
Children born between 1 September 2002 and 2 January 2011 became entitled to a government payment of up to £250 (£500 for those from lower income families). At the age of seven a second state payment of £250/£500 was made until August 2010. Additional subscriptions from parents, family and friends were allowed, up to £1,200 a year initially. After 3 January 2011, no new CTFs were created, but existing CTFs have continued to run their course towards their maturity date on the child reaching 18.

What happens when a CTF matures?
Earlier this year, regulations were introduced which will mean that when a CTF matures:
• its owner can withdraw the CTF which is free of Income Tax and Capital Gains Tax; or
• the CTF’s value (or part of it) can be invested in an ISA; or
• if the CTF provider receives no response from the CTF owner, the proceeds will be transferred to a ‘protected account’ where it will continue to enjoy freedom from UK income tax and capital gains tax (CGT).

HMRC set up many CTFs under a default procedure because the initial £250/£500 government vouchers were not redeemed. These and other ‘lost’ CTFs can now be traced using a form on the HMRC website. You can find out where a CTF is held if you do not know the provider. Fill in the form online to ask HM Revenue and Customs (HMRC) where the account was originally opened. You’ll need a Government Gateway user ID and password. If you do not have a user ID, you can create one when you fill in the online form.

How can I save tax efficiently for children?
After government payments to CTFs stopped in January 2011 and no new savers were allowed access to CTFs, the Junior ISA (JISA) was launched as a CTF replacement in November 2011, to which no government payments are made.

The popularity of JISAs has grown over the years and in the March 2020 Budget they were given a boost when the annual subscription limit – which also applies to existing CTFs – was more than doubled to £9,000 for 2020/21. All other ISA limits were unchanged.

How can JISAs help financial planning?
If you want to help with university costs for your children or grandchildren, JISAs (and any existing CTFs not yet at maturity) can be a valuable tax-efficient way to build up the necessary funds. It can provide welcome assistance with student living costs and funding further education.

Saving for younger children can also give them a helping hand when they enter early adult life, when they need to purchase a first home, a car or other key purchases which may help them to start their working lives with less financial strain.  

How can we help?
At Origen, our advisers can help you to consider how to save for your children or grandchildren in a tax efficient way and this can also be a good opportunity for Inheritance Tax planning by making use of your gifting allowances.

Some 18 year olds will discover in a few months’ time that they will have access to maturing CTFs – for many this may be the first they know of these funds, we can help to provide them with guidance and advice on how to continue this savings habit and invest in the wider marketplace.

The value of tax reliefs depends on your individual circumstances.

Tax laws can change.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

CA5277 exp05/2021

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