Child trust funds were abolished in 2011, but there are millions of them still running. Here’s a refresher of the rules on the basics of child trust funds.
The basics of child trust funds
Child trust funds have been replaced by junior ISAs and the rules are essentially the same. This is what the rules say about child trust funds:
- All the money that’s in a child trust fund is free of tax
- You, your family and friends can pay a fixed amount into a child trust fund every year. The limit normally changes at the start of the new tax year (April 6th). In the tax year 2018-19 you can pay in up to £4,260.
- The money belongs to your child and after they reach 16 they can have a say in where it’s invested
- Money in a child trust fund cannot be taken out until your child’s 18th birthday. But it can be transferred to a different provider or to a junior ISA.
- There are no restrictions on the child trust fund on what your child spends the money on.
SAVVY TIP: There’s limited information on the government’s Gov.uk website about child trust funds website.
Types of child trust fund
There are three types of child trust fund available:
- Cash child trust fund: A straightforward savings account. Some cash child trust funds include a bonus on top of the interest rate to encourage you to keep your fund with them.
SAVVY TIP: If you’ve opened a cash child trust fund you can always switch it to one that invests in shares and vice versa (and there will be no penalties for doing so).
- Stakeholder child trust fund: A fund that invests in shares, but which moves money to lower-risk investments from your child’s 13th birthday onwards. The fund cannot charge more than a certain amount a year and has to accept low minimum contributions.
SAVVY TIP: If your child was born before January 1st 2011 and you didn’t invest your voucher a year after you’ve received it, the government invested it in a stakeholder child trust fund for you.
- Shares-based child trust fund: This invests in a variety of shares in different companies. The shares may be in companies in the UK or further afield. Unlike stakeholder accounts, there is no limit on annual charges. And money does not have to be moved to less risky investments. Although some child trust fund providers may choose to do this.
What to do if you have a child trust fund
After child trust funds were abolished for new customers in January 2011, some child trust fund providers have stopped offering child trust funds and others have changed the funds they are invested in, increased charges or reduced the interest rate they are paying. Make sure you check what’s happened to your child trust fund and switch the money to a junior ISA if you will pay less in charges or have access to a wider range of funds.
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