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Billions of pounds in child saving scheme to be protected from tax

Written by: Paloma Kubiak
A rule change on Child Trust Funds means savings will be sheltered from tax at maturity if the provider hasn’t heard from the account holder.

The government confirmed that money in Child Trust Funds must be placed in a ‘protected account’ at maturity where a provider hasn’t received any instructions from the account holder.

Once in the protected account, the money will keep its tax-free status until the owner makes contact and decides on their next steps. Previously, the money in CTFs would have been automatically cashed in.

Child Trust Funds (CTFs) were available for children born between September 2002 and January 2011. The government issued families with vouchers worth up to £500 and around six million accounts were created.

The rule change is timely as the first wave of accounts reach maturity this September, meaning 18-year-olds will be able to access their money (£700m worth in the 2020/21 tax year) for the first time. Around 800,000 are estimated to mature each year and £7.5bn is due to mature in the next decade.

However, an estimated one million CTFs are missing or lost – see’s guide on Tracking down a lost Child Trust Fund. Many teenagers may also be unaware of the accounts or may not have the financial experience to deal with the money.

As a result, the rule change preserves the tax-free status of the money until the account is found, claimed and instructions given.

There are around 70 approved CTF providers and they will need to place funds in a ‘matured CTF account’ or a cash ISA or stocks and shares ISA. HMRC confirms that while no subscriptions can be made to the account, the money can be transferred to an adult ISA without it using that year’s ISA allowance.

‘Chance to make informed decision’

Adrian Lowcock, head of personal investing at Willis Owen, said this is good news as 18-year-olds will still have a pot of tax-free cash to help them get started in adulthood.

But he added: “Unfortunately, the bigger issue remains that around 1.8 million young people could benefit from a CTF that they may not even realise they have, with some £2bn currently in orphaned accounts.”

Rachael Griffin, tax and financial planning expert at Quilter, said providers must keep trying to trace owners of lost accounts to ensure they can decide what’s best for their money.

She said: “While it is great account holders won’t receive any unexpected losses due to tax, these people need to be aware they have money just idly sitting in an account potentially achieving very little. For those turning 18 in September, it is important to have the conversation with their parents now to discover if they have a CTF.

“Taking time to have the conversation now about how to use the money will mean that CTF holders can plan ahead. That will give them the chance to make an informed decision about what is best for them and their finances. This could include investing it in an ISA or make use of the government bonus offered through the Lifetime ISA to save for a property or later life.”

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