National Audit Office - Investigation into child trust funds

A Child Trust Fund (CTF) is a tax-free savings account. The scheme was introduced by HMRC and was set up for all eligible children living in the UK born between 1 September 2002 and 2 January 2011. Broadly, under the scheme, vouchers for specified amounts were provided by the Government and had to be invested in a CTF account in the beneficial ownership of the child, but the parent could choose the account provider. There were also additional amounts awarded to those who spent any time in care, were disabled or received Disability Living Allowance.   The account could then be added to with payments from family and/or friends up to the subscription limit. 

While new CTF accounts are no longer available because they were replaced by Junior ISAs (JISAs), the account may still be held by eligible children born before 3 January 2011. It is also possible to continue to pay into an existing CTF account or to transfer an existing CTF account into a JISA.

For those who wish to keep a CTF, the subscription limit for 2023/24 is £9,000. The limit applies for the period starting with the child’s birthday and ending on the day before their next birthday. There is no scope to carry forward any unused allowance. However, individuals can still top-up the CTF until the child attains age 18. It should be noted that any amounts paid by a parent to a CTF for their child will not be subject to the parental settlement provisions (so would not be taxed on the parent if income exceeds £100 gross in a tax year).

Even though the last CTF accounts will mature in 2029, the number of CTF providers has reduced from 74 in April 2011 to 55 in February 2023.

According to a recent report issued by the National Audit Office, the government paid more than £2 billion into CTFs for 6.3 million children born between 1 September 2002 and 2 January 2011. By April 2012, around 6.1 million CTF accounts had been set up through the scheme. The remaining 0.2 million accounts were set up after April 2012 for eligible children where there had been a delay opening an account.

Most children received around £250 each from the government at the time their account was set up. Children from low-income families and children in care received an additional £250 from the government (around £500 in total).  A further amount of £250 (with a further £250 for children living in low income families) was to be paid when the child reached age 7.  This additional payment at age 7 was stopped for those who reached that age after 1 August 2010.

Interestingly, HMRC set up just over a quarter of CTF accounts on behalf of children in cases where their parent/guardian had not opened an account within the 12-month time period.

Inevitably, children from low-income families were less likely to receive additional payments into their CTFs from family and friends compared to those children from families with higher incomes. The available data shows that between the scheme beginning in 2005 and 2010, 37% of CTFs received additional funds into them from sources other than the government, mainly family and friends.

In 2011/12, the first year after the scheme closed to children born after 2 January 2011, 11% of CTFs for children from low-income families received additional payments with an average payment of £202, compared with additional payments made into 27% of CTFs from higher-income families with an average payment of £342.

By April 2021, around 175,000 out of 320,000 18-year-olds had claimed and either withdrawn or re-invested a total of £376 million from their matured CTFs, but 145,000 18-year-olds had not claimed meaning a further £394 million remained in unclaimed matured accounts.

It is unclear how many CTF account holders are either not aware of, or unable to locate, their CTF. A YouGov survey of parents of children aged 8 to 16 conducted in March 2019 found that one in six parents were not aware of the CTF scheme. The government has attempted to raise awareness of CTFs among young people. For example, in 2019, HMRC began publicising the possibility that a child could have a CTF when writing to 15-year-olds with their National Insurance number. HMRC also hosts an online tool for individuals to trace accounts.

At present the government has not yet decided its long-term strategy to manage CTFs that remain unclaimed several years after maturing although HMRC is working on a strategy that may include more actively tracing account holders. Regardless of this now may be a good time to remind clients, whose children were born between 1 September 2002 and 2 January 2011, to take some action. They can use HMRC’s online tool to locate the account, although there is no need to rush to access the savings, because if no instructions are received, the funds will be held in a protected account. However, it would be advisable to consider whether they wish to transfer the amount from a maturing account into an ISA to continue saving or take the money out to reinvest in another way or use the funds for a particular purpose.

 Source: Investigation into Child Trust Funds - NAO report