Kevin Mills
Child Trust Funds
On the radio the other day it was reported that as many as 600,000 Child Trust Fund (CTF) vouchers are lying around in parents’ home still waiting to be invested. Any child born in the UK after 1 September 2002 will have received a CTF voucher of not less than £250, simply for being born!
It could be that many parents are so busy that they have not found the time to invest the money, or maybe they have simply forgotten. Others may find the choices too complicated and have put off making any decision. Whatever the reason, the £250 needs to be invested.
This voucher can only be invested in an approved Child Trust Fund. The funds in a CTF are locked until the child is 18. Some CTFs are simply deposit accounts while others offer access to a small range of funds more likely to produce meaningful growth over the 18 years.
The government’s stated aim is to provide children with a tax free lump sum on their 18th birthday. Naturally £250 is unlikely to provide a meaningful amount so family and friends are allowed to contribute up to £1,200 p.a. per trust fund. The idea is that this money can be used for university fees, deposit towards a house, gap year or whatever. Whilst this is great in theory, in practice the teenager may have different, possibly hedonistic, priorities for the tax free windfall!
Saving for specific events is not always easy because the value of a fund at a child’s 18th birthday is not often guaranteed. The value will depend on a number of factors including the performance of the investments in the fund. In addition, any prediction given on the value at the child’s 18th will have reduced buying power over time, due to inflation.
Long term saving for children can be an excellent idea. However, your child may not have the option of taking out a CTF due to their age. One option is to choose a product, known as a portfolio, that allows you to decide how the money is invested, and where and when (within limits) the child benefits from this investment. A number of these products benefit from tax advantages but you should be aware that these may be removed by the government in the future.
Both the CTF and the portfolio style of product provide access to a reasonable range of funds from low risk to higher risk. You can choose the level of your commitment. The greater the risk of the fund you select, the greater the chance that the capital invested will be lost. This should be balanced against the possible gains. The CTF and portfolio type products should be seen as long-term investments. There are certain risks with this, especially if access to the money is needed before the chosen maturity date.
If parents fail to invest the vouchers before it expires, HM Customs and Revenue will open a stakeholder CTF account on behalf of your child and tell you which CTF provider they have used. This is not something I would want for my child! However the person who receives Child Benefit for that child will receive a letter telling them where the account is and suggesting that someone with parental responsibility should apply to be the registered contact.
Once you apply to become the registered contact for the account you can change the type of account and provider by transfer. Although CTF providers cannot charge for transferring an account if your child holds a stakeholder account or some other account that invests in shares, the provider may deduct costs - stamp duty and dealing charges - in selling any stocks and shares that form part or all of the account. You should check this with your provider before going ahead and making the change. It would also be a good idea to check with the new provider how long the transfer should take. Choosing your child’s account when you first receive the voucher obviously saves you a potential headache and costs later on.
Use our contact page to request further information so that the full range or options and risks can be explained to you, an initial discussion is no charge or obligation.
The Value of your investments can go down as well as up and what you might get back may be less than that invested. Unlike a bank or building society account, where there is usually instant access, the funds in a CTF are locked until the child is 18.