The kids are alright…

The first Child Trust Funds (CTFs) will mature in September, when the holders celebrate their 18th birthdays.

The Chancellor has more than doubled, to £9,000, the amount that can now be saved into a CTF and its replacement, the Junior ISA (JISA) for the 2020/21 tax year, creating the opportunity to make more substantial savings towards younger family members’ nest eggs.

CTFs were made available to all children born between 1 September 2002 and 2 January 2011. Their value will vary considerably: some parents will have made substantial contributions over the years, while others will find that this ‘trust fund’ contains just the initial payments made by the government.

These consisted of an initial £250 to invest in either a cash or stocks and shares CTF plan (lower income families received a £500 payment). This was later cut to just £50, before the scheme was withdrawn altogether in 2011.

CTFs were replaced by JISAs, which didn’t come with any ‘free’ money from the government, although parents could continue to contribute to existing CTFs. However the annual savings limits of both JISAs and CTFs have increased over the years.

A child can’t have both a CTF and a JISA, but they can transfer a CTF into a JISA. Although the tax benefits are the same, interest rates paid on cash JISAs are higher than on the older CTFs. There is also more product choice.

Each child can access their CTF or JISA funds from their 18th birthday. For most young adults, coming into these savings may be their first experience of managing substantial sums, so it’s worth discussing with them in detail.

The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The tax efficiency of ISAs is based on current rules. The current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The value of tax reliefs depends on your individual circumstances. The Financial Conduct Authority does not regulate tax advice, and tax laws can change.

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