The government has introduced changes to the rules around child trust funds which are likely to impact adviser clients this year.
The rules will allow advisers who have clients in CTFs to put the savings into an Isa without it affecting their annual Isa allowance.
CTFs pre-date the introduction of Junior Isas and are more restrictive in terms of what assets it can invest in.
The products were launched in 2005, but investments could be made for children born as early as September 2002. The capital must be held for 18 years, which means the first lot of CTF investors can cash out from September 2020.
Under the previous rules, the only option available for holders of CTFs was to take the cash. This meant if the cash was reinvested into a regular Isa, it would then be set against that person’s Isa allowance for that year.
But a rule change, announced by the government on January 15, means investors will now be able to transfer directly from a CTF to an Isa while preserving their existing Isa allowance.
Around 800,000 CTFs will mature every year from 2020.
Commenting on the changes to the rules, Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “These are very sensible plans, which should ensure CTFs mature at the age of 18, settle down, and do the right thing. It makes it far easier for the young people who hold them to do the same thing.”
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