A recent report has highlighted the high number and value of Child Trust Funds (CTFs) left untouched by their now adult owners.
The National Audit Office (NAO) recently issued the results of an investigation into CTFs. They were a subject well suited to the NAO, which is charged with examining how efficiently government money is spent. In the case of CTFs, over £2 billion was paid into accounts for 6.3 million children born between 1 September 2002 and 2 January 2011. Most children received one payment of around £250 each (£500 for those in low income families) from the government at the time their account was set up. With few exceptions, any other input to the CTF was privately funded, typically from parents. Between 2005 and 2010, just over a third of CTFs received such top-ups.
CTFs were initially designed to mature on a child’s 18th birthday. However, shortly before the first accounts matured in 2020, regulations were introduced to allow the matured CTFs to retain their favoured tax treatment until the (adult) child decided to withdraw or transfer their funds. It is as well this action was taken as the latest HMRC data (to 5 April 2021) shows that:
- 175,000 18-year-olds had withdrawn or re-invested the funds from their matured CTF account; but
- 145,000 (45% of the total) had not claimed their matured accounts.
The report revealed that £394 million was sitting in the unclaimed accounts, an average of £2,717 for each CTF. A more recent estimate from the Investing and Saving Alliance suggested that, by August 2022, 27% of CTFs that had matured at least one year earlier remained unclaimed. That figure is eerily close to the 28% share of CTFs that were set up in default by HMRC because the child’s parent or guardian had taken no action in the 12 months after receiving an initial CTF voucher.
It is not only the owners of CTFs that have lost interest in their accounts: the number of CTF providers has also dwindled, from 74 in 2011 to 55 by February 2023. ISAs offer a much greater choice of providers and may offer lower charges than CTFs, many of which charge a 1.5% annual fee. Existing CTFs can be transferred to Junior ISAs, while matured accounts can be moved into adult ISAs. As ever, where investment transfers are involved, seeking advice comes before action.
To trace a lost CTF, go to www.gov.uk/child-trust-funds/find-a-child-trust-fund.
If you would like to discuss the above in more detail, please speak to one of our Financial Planners here.
Tax treatment varies according to individual circumstances and is subject to change. The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested, even taking into account the tax benefits. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers. Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value. The Financial Conduct Authority does not regulate tax advice.
