Over the course of any long-term investment, there can be the danger of forgetting where your money has been invested. Especially if you aren’t regularly checking on or topping up your investment.

This may be a particular issue for investors who were putting money into a Child Trust Fund, with £1.7 Billion now estimated to be held in unclaimed Child Trust Funds. Could you or your children be missing out on a potential financial windfall?

What are Child Trust Funds?

A Child Trust Fund is a tax-free savings account for children born between 1 September 2002 and 2 January 2011. Parents could invest into these accounts, benefiting from a contribution from the Government. The money belongs to the child, they can take responsibility of the account at 16, and they can then access the money from the age of 18.

There is no tax to pay on the Child Trust Fund income or profit generated. If you’ve potentially forgotten about a Child Trust Fund investment, it may be the case that it has grown in value and is ready for your child to withdraw tax-free.

What happened to Child Trust Funds?

The Child Trust Fund scheme ended in 2011, and criticism of the funds included poor fund choices and high fees. If you have an existing Child Trust Fund account, you can continue to add up to £9,000 in the 2023/24 tax year.

Child Trust Funds have largely been forgotten about since their availability ceased, and those who did have accounts may have simply forgot they had them – as previously mentioned an estimated £1.7 billion is sitting unclaimed in Child Trust Funds.

What can you do?

If you think you may hold a Child Trust Fund, check through any old documentation to see if you can track down the relevant details. If you can remember the provider, get in touch and explain you may hold a Child Trust Fund.

If you need further help, use the Government’s website for help on finding a Child Trust Fund.

If you find your forgotten Child Trust Fund, your child may be in a position to take control of the account or withdraw the money.

If they aren’t old enough to take action, then you can choose to continue to invest in the account, leave it as it is, or transfer it to a Junior ISA.

It may be worth speaking to a financial adviser, as every individual will have unique circumstances to consider.

Why a Junior ISA may be better than a Child Trust Fund

Once the Child Trust Fund scheme ended in 2011, the Junior ISA became available, which allows parents to invest up to £9,000 in the current tax year in a Cash ISA or Stocks & Shares ISA. The money belongs to the child, they can take responsibility of the account at 16, and they can then access the money from the age of 18.

A Junior ISA can be invested in a Cash ISA or a Stocks & Shares ISA, giving you the flexibility for how you want your investment to grow.

A child’s parent or legal guardian must open the account on their behalf, and the child can’t withdraw any funds until they turn 18, except under exceptional circumstances.

Similarly to Child Trust Funds, a Junior ISA can be invested in stocks and shares through a Stocks & Shares ISA, allowing you to potentially benefit from growth in the stock market. This has the potential to exceed Cash ISA returns which are linked to interest rates. It is worth noting however, as with all investing, the capital invested in a Stocks & Shares Junior will be at risk and you might get back less than initially invested.

The True Potential view

Neil Rayner, Head of Central Advice at True Potential, said “Ensuring any forgotten Child Trust Funds are not lost is vital. These are tax efficient savings that can help plan your child’s future, not only can these be transferred into the more modern Junior ISAs, but you can also now invest £9,000 per child tax free per year. A great way to help them buy their first car or get a foot on the housing ladder. Please don’t let this go to waste”

Depending on your investment provider you can either pick your own investments on behalf of your child or select a managed option which will base investment choices on the appetite for risk you have selected for your child. Speak to a financial adviser if you want to learn more about Junior ISAs.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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