The CTF is effectively an ISA for kids, one that will legally become available to them at 18.  Obviously, kids cannot invest into their own ISA until 16, at which point they can open a cash ISA, so this is a way of investing for them while leaving your own ISA allowance available for saving for your future.

The downside is a lack of flexibility as the money can’t be accessed until they reach age 18 and then the money is theirs so they can do what they like with it, which is fine as long as you have a responsible 18 year old!

It is a particularly tax-efficient savings vehicle for parents, as investments outside the CTF (and the NS&I Children’s Bonus Bond) may be taxable depending on the amount of interest earned. This is known as the “£100 rule” simply because that’s the amount of income that can be earned tax free each year. On any money gifted by a parent into a child’s name, if the income earned on that money is greater than £100 (per parent), the whole amount is taxed as though it belongs to the parent, therefore, at their marginal tax rate!

Investing into an ISA in your name for your child is the best way to retain control of the money. If you choose the ISA route, you need to consider earmarking it in your will, so that if you should die before you give the money to your child, it is clear that it was designated for them.

In summary, there are pros and cons to investing into the CTF – you just need to decide which route offers you and your child the most benefit.