Child trust funds: do you need to act now?


Thousands of child trust funds came into the control of 18-year-olds from September 2020 as the oldest accounts matured, giving children control and access to over potentially tens of thousands of pounds.

Every child born between 1 September 2002 and 2 January 2011 was eligible for a child trust fund, introduced by Labour to encourage regular and long-term savings in a tax-free account that the child could control at 16, but not withdraw funds until 18. Payments made into the account had an original upper limit of £1,200 per annum and have since risen to £9,000 in the 2021/22 tax year – meaning that by the time children turn 18, some funds could be worth at least £70,000.

While the scheme was replaced with junior ISAs in 2011, the holders of the earliest child trust funds turned 16 from the beginning of September 2018 and the first child trust funds matured in September 2020 giving the child full access to the account.  On maturity the child trust fund can either be cashed in or the proceeds passed to an Adult ISA.  However, if the child does not contact the provider then the money will be held in a protected account.

Some of the larger funds 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. However, many parents will worry that their child will fritter away the fund at their first taste of freedom.

Parents should talk to their children to discuss what they might want to do with their fund and how they might want to invest it. One option is for the child to put the trust fund into a tax-free junior ISA so that it turns into an adult ISA when he/she turns 18, but proper advice should always be sought on the best decision.

These early conversations will arm children with the best knowledge available to them, and could ward off unwise decisions when they turn 18 and gain unfettered control of the assets. While there is very little parents can do if their child still fritters away a child trust fund, they may decide that future assets they are planning to leave the child are best put in trust, rather than bequeathed outright.

In some instances the child may reach 18 but lack the mental capacity to provide instructions to the provider.  In these circumstances and in the absence of a registered Financial Lasting Power of Attorney, the parent will need to apply to the Court of Protection to be appointed as their child’s deputy, giving them the necessary authority to deal with account on their child’s behalf.

Sarah Phillips TEP is a Tax Partner at Irwin Mitchell Private Wealth, Newbury, Berks


An article of this kind can never provide a complete guide to the law in these areas, which may be subject to change from time to time. The opinions and suggestions made within this article should not be interpreted as specific advice in relation to any particular individual or individuals. Neither STEP, the article author or their firm accept responsibility for any loss occasioned by someone acting or refraining to act on the basis of the opinions and suggestions contained in this article. More