Child Trust Funds: Do you need to act now?

Thousands Of Child Trust Fund Accounts Coming Into Children’s Ownership Next Month

Thousands of child trust funds are due to come into the control of 16-year-olds next month as the oldest accounts come into maturity, giving 16-year-olds control over potentially tens of thousands of pounds.

Every child born between the 1st September 2002 and 2nd January 2011 was eligible for a child trust fund, which was introduced for regular and long-term saving goals by the Labour party.

The scheme has since been replaced with the introduction of junior ISAs in 2011, but Irwin Mitchell Private Wealth is warning that the earliest accounts are due to mature from the beginning of September onwards.

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Any payments made into the account originally maxed out at £1,200 per annum and have since risen to £4,260 by this tax year – meaning that by the time children turn 18, some funds could be worth at least £50,000.

Sarah Phillips, a tax partner at Irwin Mitchell Private Wealth said: “Although 16-year-olds with these child trust funds won’t be able to access the money until they turn 18, they will take over responsibility for the account. They’ll have a choice over if they want to refer to a decision whether to keep it in the same account or change to a different one, as well as decide on a different investment strategy if they so wish.

“Some of the larger trust funds will be in the tens of thousands and could make a huge difference to a young adult’s life by providing the means for a house deposit, money to start their own business or to be put towards higher education – but for many parents the worry will be that their child will fritter away the fund as their first taste of freedom.”

Tax experts at Irwin Mitchell Private Wealth are advising that parents should have a conversation with their children now to ward off any risky decisions in two years’ time when their children become adults.

Sarah continued: “Now is a good time to have a discussion with your child about what they plan to do with the money and to give them some guidance on investment options. Learning how to make these sensible decisions will give them valuable experience for passing down further wealth in the future, like lifetime gifts or inheritance on death.

“An easy and relatively failsafe option would be to see if your child wants to put the trust fund into a tax-free junior ISA so that it turns into an adult ISA when they turn 18, but proper advice should always be sought on the best decision for your child

“It’s worth teaching your children the right way to invest so they are armed with the best knowledge available to them – the child who fritters away their child trust fund may find future assets being looked after in trust for them rather than passed to them outright.”

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