In 2005, former chancellor Gordon Brown launched a tax-free savings scheme designed to help parents save for their children’s futures.
Some six million children born between 2002 and 2011 were handed savings vouchers worth £250, or £500 for those from low-income families. The money could be left in cash or invested. The family could make additional contributions to the pot, which the child could access when they turned 18.
Catherine Alderson, 60, from Tyne and Wear, has managed to turn her daughter’s £250 trust fund into a £56,000 nest egg. Now her daughter is of age to manage the funds herself, Ms Alderson wants help in advising her how she might use the funds and keep them safe.
“My daughter was born in February of 2004 and we took advantage of the government voucher, opening an account and then adding to it over the years with the help of grandparents. It has been invested in the HSBC UK Growth and Income fund, but I want to know the best place to put it to combat the impact of inflation,” she said.
“At present, my daughter is studying for A-levels and is looking to go to university to study costume design. I am wondering if she should use the money to pay for her tuition or save it to buy a house when she is ready.”
Ms Alderson said she was unsure whether she should leave the money in the Child Trust Fund, move it into an Isa or transfer it to a Lifetime Isa, a state-aided savings scheme aimed at helping first-time buyers on to the property ladder.
Faye Silver, wealth manager at Raymond James
Ms Alderson’s daughter should not use the £56,000 savings pot to fund her university tuition, but keep the funds invested and take out student loans instead.
Rather than considering the loans a debt, they can be viewed more like a tax, which is paid only once earnings exceed £27,295 a year at a rate of 9pc of earnings.
This means that low earners pay little or nothing, and the debt is erased after 30 years, meaning her daughter may in fact never have to pay back a penny, depending on how much she earns over her career. By keeping hold of the savings pot for now, Ms Alderson’s daughter will leave university with a lump sum to purchase a property early on in her career, rather than paying rent for years.
She should move the money from the Child Trust Fund to a stocks-and-shares Isa, a tax-free savings wrapper. The entire £56,000 pot can be transferred without affecting the £20,000 annual limit for Isa contributions. She can then continue to save into this account in the future.
