£1.7bn in child trust funds go unclaimed by beneficiaries
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
12 September 2023
As children become entitled to access child trust fund balances, we look back at the scheme and consider the recent Public Accounts Committee report on the unclaimed funds.
The child trust fund (CTF) was an initiative of the Labour government to encourage families to save money for their children. Parents of children born from 1 September 2002 who claimed child benefit were able to open a CTF account when their children were born and receive a £250 contribution from the government. A further £250 government contribution was added when the child reached the age of 7. Additional government contributions were available for families on lower incomes.
The coalition government announced that the government contribution would be phased out from August 2010 ahead of the CTF scheme ending for babies born after 2 January 2011. The eligibility of children born between 1 September 2002 and 2 January 2011 to continue to hold a CTF remained unaffected.
What special tax rules applied to CTF accounts?
The CTF is a long-term savings account for children born between 1 September 2002 and 2 January 2011. In addition to the government contribution, it is possible to add money to a CTF. There’s an annual limit of £9,000 in contributions, the year is based on the child’s birthday rather than the tax year.
Any income or profits within a CTF are not subject to income tax on the child or the parent. Any entitlements to state benefits or tax credits that the family may be entitled to will remain unaffected.
The child can take control of their CTF when they reach 16 and can access the funds when they reach 18. The funds can remain within the CTF wrapper or can be transferred to a junior individual savings account (see below).
What about children born after January 2011?
The CTF scheme ceased to be available for children born after 2 January 2011. Children born after that date can apply for a junior individual savings accounts (JISA).
These have a similar tax treatment in terms of the income and profits not being taxable. The child is similarly able to take control of their JISA when they reach 16 and will be able to access the funds when they reach 18.
The main difference between a JISA and CTF is that the JISA does not have the government contribution at birth and age 7.
Unclaimed CTF account balances
The House of Commons Public Accounts Committee recently published a review into the CTF now that some of the beneficiaries are over 18.
This gives credit to HMRC for the initial set up of the CTF scheme, which cost the government £2 billion in contributions. It does however criticise the lack of planning for the longer term, which may explain the level of accounts which have been unclaimed when the children reached 18.
The Public Accounts Committee report cites that, in spring 2023, 42% of 18-to-20-year-olds (almost one million adults) had not claimed their CTF accounts balance. The cash value of the unclaimed balance is estimated at £1.7 billion and it is possible that the participants may have forgotten that they have a CTF to claim.
We’re raising awareness of this in case you have any clients with offspring born between 1 September 2002 and 2 January 2011. HMRC can assist individuals find a lost CTF, which can be requested either online or via post.
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