Child Trust Funds – A reminder

HMRC recently published its annual savings statistics in relation to Individual Savings Accounts (ISAs), Child Trust Funds (CTFs), and Help to Save accounts. Unsurprisingly, when looking at HMRC’s statistics, the ISA figures gained most media coverage, with the CTF tables being much less detailed, however the statistics show that over 9 billion pounds still remains invested in CTFs.

As a reminder a CTF is a tax-free savings account for children born between 1 September 2002 and 2 January 2011 and while these accounts are no longer available, as they were replaced by Junior ISAs (JISAs), they may still be held by eligible children born before 3 January 2011.

Under the scheme, vouchers for specified amounts of up to £500 were provided by the Government and had to be invested in a CTF account in the beneficial ownership of the child, but the parent could choose the account provider. There were also additional amounts awarded to those who spend any time in care, were disabled or received Disability Living Allowance.

The CTF subscription limit for 2021/22 is £9,000. The limit applies for the period starting with the child’s birthday and ending on the day before their next birthday. There is no scope to carry forward any unused allowance. However, individuals could (and still can) top-up the CTF until the child attains age 18. It should be noted that any amounts paid by a parent to a CTF for their child will not be subject to the parental settlement provisions (so would not be taxed on the parent if income exceeds £100 gross in a tax year).

With regard to investment options, there were three main types of CTF accounts available - ‘stakeholder’, share-based accounts or cash accounts and during the child’s minority the parent (or registered contact) could change the investments within the account.

Once the child is 16, they can take over the responsibility for management of the account should they wish to do so or leave the registered contact to manage the account. Then at age 18, the CTF account matures so the child is able to withdraw money from the account or move it to a different savings account. So, for example, the child could transfer the investments to a cash ISA or a stocks and shares ISA. If they choose to do this, the transfer won’t count as part of their annual ISA subscription limit of £20,000, so this provides a good opportunity to build up further savings either for higher education or other future financial needs.

From April 2015, it has been possible to transfer a CTF account to a Junior ISA and while many may have taken advantage of this, there are still numerous CTFs in existence. Since 2002, around 6.3 million CTF accounts have been set up, roughly 4.5 million by parents or guardians and a further 1.8 million set up by HMRC where parents or guardians did not open an account.

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HMRC’s recent statistics do not include figures for the total value invested or total subscribed in 2019/20. Instead, the number of plans in existence and their average value is given together with the number of CTFs in various contribution bands. The average market value of a CTF in 2019/20 was £1,500, that's more than £9 billion in total.

Given that CTFs were available to those born between 1 September 2002 and 2 January 2011, the first CTF accounts matured in September 2020 and it is anticipated that around 55,000 accounts will mature each month. In recent months there has been some press coverage around maturing CTFs, because, given that a number of accounts were set up by HMRC, there will be children out there that may not be aware that there is an account in their name. So, there are numerous accounts which have been neglected and forgotten about. All is not lost though as HMRC has, created an online tool to help individuals find where their account is held.

Note where the child is in, say, local authority care their account is usually managed by a charity on their behalf – the Share Foundation. However, in cases where the parent has opened the account and the child attains age 18, but is not capable of appointing an attorney and cannot manage the account themselves, then under the laws of England and Wales, the parents/guardians would need to apply to the Court of Protection for a Deputyship Order. In Scotland, similar rules apply. However, here they would apply for a Guardianship Order via the Office of Public Guardian. The Order effectively appoints someone to make decisions on an account holder’s behalf due to their loss of mental capacity. The Court will decide who to give the responsibility to and what they can do – usually a parent/guardian.

Finally, it is important to note that if the CTF provider receives no instructions on the future of the investments from the account holder, those investments must be placed, at maturity, and ‘at the option of the account provider’, in a ‘protected account’ pending instructions. The ‘protected account’ can be a ‘matured account’ or a cash ISA or stocks and shares ISA offered by the current CTF provider thereby ensuring that the funds continue to grow in a tax-free environment.

In summary, now may be a good time to remind clients, whose children were born between 1 September 2002 and 2 January 2011, to take some action. If they have forgotten about the account they can use the online tool to locate it, although they don’t need to rush to access the savings, as, if no instructions are received, the funds will be held in a protected account. However, it would be advisable to consider whether they wish to transfer the amount from a maturing account into an ISA to continue saving or take the money out to reinvest in another way. Of course, if the funds are required for a particular purpose then there may be no choice.

Sources:

Commentary for Annual savings statistics: June 2021 - GOV.UK (www.gov.uk)

Teenagers to get access to Child Trust Funds for first time - GOV.UK (www.gov.uk)