What Is a Childhood Trust Fund? A Complete UK Guide
If you’re a parent, guardian, or grandparent planning for a child’s financial future, you may be wondering: what is a childhood trust fund? In the UK, a childhood trust fund is a financial tool that allows you to set aside money or assets for a child, with safeguards in place until they reach a certain age—usually 18 or older.
This guide will explain how childhood trust funds work, the types of trusts available, tax implications, and how to set one up properly. You’ll also learn how to protect the child’s future and stay compliant with UK laws. If you’re thinking of using a trust to protect family wealth, this article is for you.
What Is a Childhood Trust Fund?
A childhood trust fund is a legal arrangement where money or assets are set aside for a child and held by trustees until a specified age. It ensures the funds are managed responsibly and can only be accessed when the child reaches a milestone like adulthood, marriage, or university enrolment.
The key difference between a trust and a savings account is legal control. With a trust, the assets belong to the trust—not the child—until the terms are met. This setup offers greater protection and flexibility for long-term financial planning.
How Does a Childhood Trust Fund Work?
To create a trust for a child, you (the settlor) appoint one or more trustees to manage the assets on behalf of the child (the beneficiary). These trustees are legally bound to act in the child’s best interests and according to the terms you set out.
The trust deed outlines:
- Who the trustees and beneficiaries are
- When the child can access the money
- How the money can be used (e.g., education, housing)
Once the fund is set up, you can contribute assets like cash, property, or shares. The trust protects the assets from being misused and can also shield them from certain taxes or claims.
Types of Childhood Trust Funds
In the UK, there are several types of trusts you can use for children:
1. Bare Trust
The simplest form. Assets are held in the name of the trustee but belong to the child. The child automatically gains full control at age 18.
2. Discretionary Trust
The trustees have discretion over when and how to distribute assets. Ideal if you want flexibility or if there are multiple potential beneficiaries.
3. Interest in Possession Trust
Provides income from the trust to a beneficiary (e.g., a parent) for a set time, after which the child receives the capital.
Each type offers different levels of control and tax implications. Speak to an estate planning professional to determine which one suits your goals. You can book a free consultation with our team to get started.
Tax Implications of a Childhood Trust Fund
Tax rules for trusts can be complex, especially when the beneficiary is a minor. Here are key points to consider:
- Income Tax: If the income from the trust exceeds £100 per year and comes from a parent, it may be taxed as the parent’s income.
- Capital Gains Tax: Trustees have an annual CGT allowance. Gains above the allowance may be taxed.
- Inheritance Tax: Trusts can be subject to periodic and exit charges if they exceed the nil-rate band (£325,000).
Using the right trust structure and planning early can help minimise these taxes. Our inheritance tax planning service can help you reduce exposure legally and effectively.
Can You Use a Childhood Trust Fund for Anything?
No. The trustee must follow the rules set out in the trust deed. Funds are generally used for:
- Education costs
- University tuition
- Buying a first home
- Medical or special care needs
Trusts give you peace of mind that the money won’t be squandered and that it will benefit the child at the right time in life.
How to Set Up a Childhood Trust Fund
Setting up a childhood trust fund involves several steps:
- Decide which type of trust is best for your family’s needs
- Choose your trustees carefully—they should be responsible and financially savvy
- Create a trust deed with clear terms and conditions
- Register the trust with HMRC if it receives taxable income or gains
You can create a trust through a solicitor or a specialist estate planning service like MP Estate Planning UK®. We ensure the trust is legally compliant, tax-efficient, and tailored to your family’s goals. Book your free consultation today to explore your options.
Is a Childhood Trust Fund Right for You?
If you want to protect money for your child, plan ahead for education costs, or pass on wealth without losing control, a childhood trust fund is an excellent solution. It’s flexible, legally secure, and can be tailored to your wishes.
Trusts also offer protection from financial mismanagement, divorce settlements, and potential claims against the child’s estate in the future. This makes them a smart move for parents and grandparents looking to leave a lasting legacy.
Other Tools to Consider Alongside a Trust
- Writing a will to ensure your wishes are honoured
- Creating a Lasting Power of Attorney to manage affairs if you lose capacity
- Care fees protection planning to avoid your estate being eaten up by future costs
Conclusion: Protect Their Future Today
A childhood trust fund can be one of the most powerful tools in your estate planning toolkit. It provides structure, security, and protection for your child’s financial future—while giving you the flexibility to shape how the funds are used.
Whether you’re just getting started or ready to set one up, our estate planning experts are here to help. We’ll guide you every step of the way, ensuring your trust is both legally sound and aligned with your goals.