Guidance

Child Trust Fund guidance notes for providers

Updated 6 April 2024

Introduction

Overview of the Child Trust Fund

A Child Trust Fund (CTF) is a savings product that provides tax relief for children. It was designed to provide a sum of money when a child reached adulthood. The CTF scheme started on 6 April 2005 and a CTF (with a government contribution) was provided to all children born between 1 September 2002 and 3 January 2011. If an account was not opened by the child’s parent, one was opened on the child’s behalf by HMRC.

The scheme was closed to new entrants in January 2011, but existing accounts remain open for contributions and management purposes. Children who are not eligible for a CTF may be eligible for a Junior Individual Savings Account (JISA). A child cannot have both a CTF and a Junior ISA. A child with a CTF can have their CTF transferred into a Junior ISA.

Income and gains generated by CTF investments are exempt from Income Tax and Capital Gains Tax. The income generated from parental subscriptions to the CTF does not count toward the parent’s income under the settlements legislation (section 629 of the Income Tax (Trading and Other Income) Act 2005).

A CTF is an investment account managed in accordance with the CTF regulations under terms agreed between the CTF provider and the registered contact.

The provider holds investments on behalf of the child, and claims repayment of Income Tax deducted at source, by submitting tax claim forms to Charities, Savings & International 1 (see the section on contacting HMRC). Claims in respect of insurance products are made by the insurance company or friendly society providing insurance cover (who may be different to the provider).

Anybody can make subscriptions into a child’s CTF. Amounts can only be withdrawn from a CTF before the child’s 18th birthday to pay account management charges made by the CTF provider, or if the child is terminally ill. If the child dies before they reach 18, the investments in the CTF become part of the child’s estate.

The guidance notes and legislation

The guidance notes are for providers and explain how to operate the CTF scheme.

Providers are reminded of their obligations to comply with the Financial Conduct Authority Handbook (FCA) of rules and guidance on the Financial Conduct Authority website, and anti-money laundering legislation.

The main legislation is in the Child Trust Funds Act 2004.

The detailed rules are contained in the Child Trust Funds Regulations 2004 No.1450, and all subsequent amendment regulations and the Child Trust Funds (Insurance Companies) Regulations 2004 No.2680.

Contacting HMRC

There is online guidance about the Child Trust Fund for members of the public.

Correspondence and forms can be sent to:

HMRC’s BT&C Operations Team
Charities, Savings and International 1
HMRC
BX9 1AU

CTF providers can send queries by email to HMRC at: savings.audit@hmrc.gov.uk

For technical assistance when making a return of CTF account information to HMRC email: javid.bashir@hmrc.gov.uk

Developers of third party CTF annual return software who need help can email HMRC’s Software Development Support team at this address: SDSTeam@hmrc.gov.uk

Members of the public can get information on the Child Trust Fund page on GOV.UK.

You can find more information about The Share Foundation on its website.

CTF definitions

51% subsidiary

Fifty one per cent subsidiary has the meaning given by Chapter 3 of part 24 of the Corporation Tax Act 2010.

75% subsidiary

Seventy five per cent subsidiary has the meaning given by Chapter 3 of part 24 of the Corporation Tax Act 2010.

Adoption order

Has the meaning in section 46(1) of the Adoption and Children Act 2002(1) or section 28 of the Adoption and Children (Scotland) Act 2007 or of Adoption Order in Article 2(2) of the Adoption (Northern Ireland) Order 1987, as the case may be, and includes any corresponding order under the Adoption (Scotland) Act 1978, and any order of a court in the Isle of Man or any of the Channel Islands which, under section 108 of the Adoption and Children Act 2002, is declared to correspond to an adoption order made under that act.

Alternative finance arrangements

Arrangements falling within section 47 or 49 of the Finance Act 2005.

Assurance undertaking

Has the meaning in Article 2 of the Council Directive of 5 November 2002 concerning life assurance (No. 2002/83).

Bank of England base rate

The rate announced from time to time by the Monetary Policy Committee of the Bank of England as the official dealing rate, being the rate at which the bank is willing to enter into transactions for providing short-term liquidity in the money markets.

Board of HMRC

The Board of HMRC is chaired by the lead non-executive and includes the permanent secretaries, the non-executive board members and the chief finance officer.

Building society

A building society within the meaning of the Building Societies Act 1986, or the Irish Building Societies Act 1989.

Collective Investment Schemes Sourcebook (COLL)

This is the sourcebook issued by the FCA under section 243 of the Financial Services and Markets Act 2000.

Company

A company is any body corporate having a share capital other than:

• an open-ended investment company within the meaning of section 236 of the Financial Services and Markets Act 2000
• a UK Undertakings for Collective Investment Transferable Securities (UCITS)

Credit union

A society registered as a credit union under the Industrial Provident Societies Act 1965 or the Credit Unions (Northern Ireland) Order 1985.

EEA State

Find a list of states of the EEA on the GOV.UK website.

Equities

Shares in a company incorporated anywhere in the world and officially listed or admitted to trading on a recognised stock exchange.

European Institution an EEA firm of the kind mentioned in paragraph 5(a) to (d), (f) and (h) of schedule 3 to Financial Services and Markets Act 2000 which is an authorised person for the purposes of that act as a result of qualifying for authorisation under paragraph 12(1) to (4) and (7) of that schedule.

FCA

The Financial Conduct Authority.

Gilt edged security

Securities which are gilt edged securities are listed in paragraphs 1 and 1A of schedule 9 of the Taxation of Chargeable Gains Act 1992.

Guardian

A guardian of a child within the meaning in section 5 of the Children Act 1989, section 7 of the Children (Scotland) Act 1995 or Article 2(2) of the Children (Northern Ireland) Order 1995, as the case may be.

Incorporated friendly society

A society incorporated under the Friendly Societies Act 1992.

Insolvency event

The procedures listed in the definition of ‘insolvency event’ in regulation 19(15) of the Payment Services Regulations 2009.

Insurance company

• a person (other than a friendly society) who has permission under part 4 of the Financial Services and Markets Act 2000 to effect or carry out contracts of insurance
• an EEA firm of the kind mentioned in section 5(d) of Schedule 3 to the Financial Services and Markets Act 2000 which carries on:
  • business which consists of the effecting or carrying out contracts of insurance
  • business through a branch or agency in the UK

Insurer

• a person who has permission under part 4 of Financial Services and Markets Act 2000 to effect or carry out contracts of insurance
• an EEA firm of the kind mentioned in section 5(d) of schedule 3 to Financial Services and Markets Act 2000 which has permission under section 15 of that schedule (as a result of qualifying for authorisation under section 12 of that schedule) to effect or carry out contracts of insurance

Investment trust

An investment trust has the same meaning as in section 1158 of the Corporation Tax Act 2010.

Matured CTF account

An account which is to be treated as a continuing account of the account holder who held the CTF before their 18th birthday, who has not given instructions to their provider.

Non-UCITS retail scheme

A non-UCITS retail scheme is a scheme that satisfies the relevant requirements of COLL and includes a ‘recognised scheme’ by virtue of section 270 or 272 of the Financial Services and Markets Act 2000, which would fall within the requirements of COLL if it were an authorised fund.

Parental responsibility

Under general law parents who are married to each other will each have parental responsibility. Where parents are not married the mother will automatically have parental responsibility, as will the father if:

• the father is registered on the birth certificate
• parents agree by means of a parental responsibility agreement
• a court so orders

Other individuals who will have parental responsibility include:

• adoptive parents
• a step-parent under a parental responsibility agreement
• testamentary or special guardians
• a person a child is living with under a residence order

Protected account

An account which is a matured CTF account or an ISA holding cash or investments transferred by the account provider when no instructions have been given by the account holder on their 18th birthday.

Recognised stock exchange

‘Recognised stock exchange’ means:

• any market of a recognised investment exchange which is for the time being designated as a recognised stock exchange for the purposes of section 1005 of the Income Tax Act 2007 by an order made by the Commissioners for HMRC
• any market outside the United Kingdom which for the time being so designated

It includes the London Stock Exchange, the PLUS-listed market, and any such stock exchange outside the UK as is designated in an Order of HMRC.

You can see a list of stock exchanges that have been designated as recognised stock exchanges HMRC’s website.

The phrase ‘listed on a recognised stock exchange’ in respect of shares and securities is now defined at section 1005(4) of the Income Tax Act 2007. It means shares and securities which are admitted to trading on that exchange and included in the official UK list maintained by the Financial Services Authority as the UK Listing Authority or are officially listed in a qualifying country outside the UK in accordance with provisions corresponding to those generally applicable in EEA states.

Recognised UCITS

An undertaking established in the UK or an EEA State within the meaning given by section 236A and 271A of the Financial Services and Markets Act 2000, and which is a recognised scheme for the purposes of part 17 of that act.

This includes an undertaking established in Gibraltar which is a UCITS under the law of Gibraltar which implemented Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities.

The EEA consists of the 27 member states of the EU, plus Iceland, Liechtenstein and Norway. A list of states of the EU is available.

Registered contact

The responsible person who may give instructions to the provider with respect to the management of the CTF, or The Share Foundation.

Registered friendly society

A society within the meaning of the Friendly Societies Act 1992 and includes a society treated as a registered friendly society by virtue of section 96(2) of that Act.

Relevant authorised person

A firm mentioned in section 697(2)(b) of the Income Tax (Trading and Other Income) Act 2005.

Relevant collective investment scheme

An authorised unit trust, an authorised open-ended investment company, or a recognised scheme, as defined in section 237(3) of the Financial Services and Markets Act 2000.

Responsible person

A person (not a local authority) who is aged 16 or over and who has parental responsibility for the child for whom the CTF is opened.

Security

A security means any loan stock or similar security of a company whether secured or unsecured. Qualifying securities may therefore include loans, loan stocks (whether secured or not) debentures, and Eurobonds, either in registered or bearer form.

Special guardian

Has the meaning in section 14A of the Children Act 1989.

Stakeholder CTF

In brief, the investments held in a stakeholder CTF must be selected according to the age of the child, the CTF must accept single subscriptions of £10 or more, and the maximum management charge that can be levied is 1.5%. In the context of CTF a ‘stakeholder product’ is separate to the definition provided by Financial Services and Markets Act 2000, the charge does not need to reduce to 1% after 10 years.

Strip

Strips involve the separation of the interest ‘coupons’ from the underlying principal on which the interest is payable.

Subscription year

The first subscription year starts the day the CTF is opened and ends on the day before the child’s next birthday. The succeeding years start on the child’s birthday and end on the day before the next birthday. In any year where the CTF closes (due to death of the child, or the child’s 18th birthday) the year of subscription ends when the CTF closes.

UK UCITS

a) a collective investment scheme authorised under section 31(1)(a) of Financial Services and Markets Act 2000, which complies with the requirements to be a ‘UCITS scheme’ for the purposes of the Collective Investment Schemes Sourcebook (see in particular COLL 1.2.2).

b) a part of a UK UCITS mentioned in paragraph (a) of this definition which would be a sub-fund of an umbrella scheme which is a UK UCITS.

Units in, or shares of, a UK UCITS or recognised UCITS

The rights (however described) of the holders of the units or shares in that UK UCITS or recognised UCITS.

With-profits fund

A fund maintained by an insurer in respect of a particular part of its long-term business for which:

• separate accounting records are maintained by the insurer in respect of all income and expenditure relating to that part of its business

• the benefits payable in respect of policies allocated to that fund are determined partly by reference to a discretion exercisable by any person

The CTF provider

Who can provide CTFs

Only providers approved by the Board of HMRC can be CTF providers.

A CTF provider must be:

• an authorised person within the meaning of the Financial Services and Markets Act 2000 who has permission (other than an interim permission) to carry on one or more of the activities specified in articles 14, 21, 25, 37, 40, 45, 51ZA, 51ZC, 51ZE, 53 and, insofar as it applies to any of those activities, Article 64, of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001

• a European institution with a UK base which carries on one or more of the activities above

• a building society

• a person falling within section 991 of the Income Tax Act 2007 (including a credit union)

• an insurance company

• an incorporated friendly society

• a credit union which is an authorised person within the meaning of section 31(1)(a) of the Financial Services and Markets Act 2000 who has permission to carry on one or more of the activities specified in article 5 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001

• a registered friendly society

• any other assurance undertaking

Providers must not be prevented from acting as a CTF provider by any limitations or requirements imposed under part 4A of the Financial Services and Markets Act 2000, or by any prohibition or prohibition order in or made under that act.

Before they can be approved by the Board, anyone wishing to become a provider of CTFs must:

• where the person agrees to accept Revenue allocated accounts, to allow instructions from the registered contact for management of the CTF to be made by post (whether or not other methods are used)

• agree to publicise (and update where appropriate) statements of the minimum amount which may be subscribed to the CTF on a single occasion and the permitted means of payment of subscriptions

• agree to publicise (and update where appropriate) statements of the extent to which social, environmental or ethical decision are taken into account in selecting, retaining or realising investments

• agree to tell anyone who wants to make subscriptions to a CTF (other than the child) that the subscription is a gift to the child

• make sure that a child’s unique reference number will only be used for the purposes of that child’s CTF and of fulfilling the requirements of the CTF regulations with regard to that CTF

• make sure that the amount of the initial or special contribution to a CTF (whether there is a supplementary contribution to the CTF, and whether the CTF is a Revenue allocated account) is information held for the purpose of the child’s CTF (and of fulfilling the requirements of the CTF regulations with regard to the CTF) only, and shall not be used for other purposes (including marketing other products)

The provider must also give details of the bank account CTF government contributions must be paid into.

Tax representatives

An approved provider who has an assurance undertaking will have to either appoint a tax representative, make arrangements with the board for some other person to make sure that their duties as a provider are met, or make other arrangements with the board to make sure that their duties are met.

A tax representative must be:

• an individual who is resident in the UK or a company that has a business establishment in the UK

• entitled to act on behalf of the provider in relation to the duties set out in the regulations

• responsible for ensuring that the provider meets the duties set out in the regulations

• personally liable where the provider fails to meet these duties

A tax representative’s appointment is treated as being terminated where the board has reason to believe that the tax representative has failed to make sure that the provider met their prescribed duties, or does not have adequate resources to make sure that the duties are met.

The board will notify the provider of the termination and the date when it takes effect.

Applications for approval as a provider

Anyone who wishes to be a provider must apply to HMRC for approval using the CTF11 application form.

The applicant must provide:

• their registered name or legal title

• their full address including postcode

• their email address

• the capacity in which eligibility is claimed

• the name and telephone number of one or more individuals appointed to act as liaison officers to provide day-to-day contact with HMRC

• bank details

• the name the applicant trades under and under which they intend to offer CTFs, and the address, telephone number and website which will be included in the list of providers made publicly available both on paper and on GOV.UK

• any other trading name the provider trades under (this must not include any separate legal entities)

• UK insurance firms should send a copy of their notice of authorisation from the FCA — foreign insurers should send a copy of their authorisation under Article 6 of the first Long Term Insurance Directive

If any of the information provided on the application subsequently changes, providers should inform HMRC in writing as soon as possible. If the provider is incorporated, and changes their name, then a copy of the certificate of incorporation on change of name should be sent to HMRC who must also be informed of any change of liaison officer, either by the retiring liaison officer, or by an authorised signatory.

HMRC will normally respond to any application for approval within 28 calendar days and notify successful applicants in writing. It will allocate a unique reference number for use in all future communications and include the new provider in the list of approved providers.

The provider’s details will be added to the list of approved providers published on GOV.UK.

After being accepted as a provider, 2 separate letters will be sent. The first will give the unique reference number, and the second will give an activation token (a number). The activation token is an 11-digit reference with both alpha and numeric characters.

The provider will need both of these numbers to register at the Government Gateway. When using the Government Gateway the provider will be asked to create a password and will be given their user ID. The provider will not need the activation token again. The provider will need the user ID and password every time they access the gateway.

The user ID and password should never be revealed to anyone else.

The terms of approval may include conditions designed to make sure that the provisions of the CTF regulations are satisfied. Approval is valid from the date stated in the notice issued by HMRC. If the application is not approved, HMRC will explain the reasons in writing.

HMRC will issue a notice of approval unless they believe that the person is not eligible to manage CTFs, in which case they will issue a notice of the decision to the person explaining why approval cannot be given. The notice will explain how to appeal against the decision. The person may appeal within 30 calendar days of the date the notice is issued.

Providers must give the information set out in the section ‘Information to be supplied before claims are made’ before their first claim to repayment of tax.

Providers are responsible for making sure that the information they provide for the list contained on the website is accurate and up to date. If any of the details change they should tell HMRC immediately.

Inclusion of a name on this list means that HMRC is satisfied that the person, firm or company concerned is approved. Neither HMRC nor any other government department guarantee that any of those concerned is able to manage CTFs satisfactorily nor has HMRC approved any CTF which the provider may offer. Potential registered contacts should take independent advice if they are in any doubt about the suitability of the provider or of a particular CTF.

Accepting Revenue allocated accounts

A provider can agree to accept Revenue allocated accounts (see the section on ‘Revenue allocated accounts’) at the time of application for approval, and the application form provides for this. The Revenue allocated accounts must be stakeholder accounts. Where a provider wishes to accept Revenue allocated accounts after application they can do so by applying in writing to HMRC.

A provider cannot agree to accept Revenue allocated accounts unless they are able to offer the account themselves. They cannot accept Revenue allocated accounts which are then set up with another provider.

A provider can only stop accepting Revenue allocated accounts by writing to HMRC, giving 30 calendar days’ notice of their intention to stop. The provider must continue to manage any existing CTFs that were opened as Revenue allocated accounts.

Stopping being a provider

A person will stop being a provider if:

• HMRC withdraws approval

• the provider voluntarily stops

• they can no longer qualify as a provider

Formal withdrawal of approval

HMRC may withdraw approval from a provider if:

• it has reason to believe that the provider is failing

• the provider has failed to manage their CTFs in accordance with the regulations

• the provider is not qualified to act as a provider

HMRC will issue a notice of withdrawal of approval, which will specify the:

• disqualifying circumstances
• that the withdrawal is only effective from the date on which the last of the accounts has been transferred
• that from the date of the notice, the provider must not accept subscriptions or open new accounts

The notice will explain how to make an appeal against the withdrawal. Providers may appeal within 30 calendar days of the date the notice is issued.

If no appeal is made against the notice of withdrawal of approval or an appeal against withdrawal has not been successful, the provider must write to each registered contact, or to the child where there is no registered contact, or to The Share Foundation within 30 calendar days of the date they stopped to qualify. The written notice must tell the registered contact, child, or the Share Foundation that they have the right to transfer the CTF to another provider.

A CTF provider will not cease to act as an account provider until all accounts have been transferred to another provider. The Provider will be unable to accept any new accounts or subscriptions during this time.

Voluntarily stopping being a provider

A provider who intends to stop managing CTFs must give notice in writing to HMRC and to each registered contact (or the child if there is no registered contact for the CTF, or The Share Foundation) at least 30 calendar days before the date they intend to stop. HMRC can then check that the provider has fulfilled all their obligations under the regulations. The notice to the registered contact, child or The Share Foundation must tell them they have a right to transfer the CTF to another provider.

A CTF provider will not cease to act as an account provider until all accounts have been transferred to another provider. The Provider will be unable to accept any new accounts or subscriptions during this time.

Why you may no longer qualify as a provider

A person no longer qualifies as a provider when they are no longer eligible, or when:

• there is an insolvency event in relation to the account provider

• a debt relief order is made (under part 7A of the Insolvency Act 1986)

• an application has been made for a bank insolvency order or a bank administration order

• a relevant authorised person or an assurance undertaking, is subject of the equivalent of an insolvency event, a debt relief order or has had a receiver appointed to manage its property

• in the case of a European institution, you do not have a UK base to carry out your activities

• in the case of a building society, a person falling within section 991 of the Income Tax Act 2007 or a Credit Union

  • it stops being a building society or to be a person falling within section 991 Income Tax Act 2007 or a Credit Union, as the case may be

  • its directors have made a proposal under part 1 of the Insolvency Act 1986 for a composition in satisfaction of its debts or a scheme of arrangement of its affairs

  • a receiver or manager of its property has been appointed

A provider who no longer qualifies must give notice in writing to HMRC and to each registered contact (or to the child where there is no registered contact, or to The Share Foundation) within 30 calendar days of the date they stopped to qualify. This notice must tell the registered contact or child that they have the right to transfer the CTF to another provider.

A CTF provider will not cease to act as an account provider until all accounts have been transferred to another provider. The Provider will be unable to accept any new accounts or subscriptions during this time.

Returns required when you stop being a provider

A provider who has stopped managing CTFs must submit an annual claim form (if they have made any interim claims), and a return of information to the date when they stopped.

If you have been forced to stop, or approval has been withdrawn, the person appointed to end the CTF scheme should perform these duties.

Delegation of the provider’s functions or responsibilities

Under the management agreement entered into with the registered contact, a provider can delegate any of the functions or responsibility of the management of the CTF to another person. That person does not need to be an approved CTF provider. The provider remains responsible for the actions of the person they have delegated any CTF function or responsibility to.

Types of Child Trust Fund

Stakeholder and non-stakeholder

There are 2 types of CTF: a stakeholder CTF or a non-stakeholder CTF. It cannot be a mix of the 2. A change from one type to the other can be made by an internal transfer, or on external transfer to another provider.

Both stakeholder and non-stakeholder CTF accounts mature on the account holder’s 18th birthday. If no instructions are given to a CTF provider, the account becomes a matured CTF account.

The stakeholder conditions on the CTF account do not apply to a matured CTF account. The investment profile should remain unchanged and the term and conditions should remain substantially the same as before the account holder’s 18th birthday.

Stakeholder conditions

A stakeholder CTF is a stocks and shares account characterised by additional rules to protect account holders. The stakeholder CTF has 6 conditions, all of which must be satisfied. The conditions cover:

• the types of investments allowed

• exposure to equities

• diversification and suitability

• means of payment of subscriptions

• the minimum subscription

• charge capping

The terms stakeholder or non-stakeholder refer to the overall profile of the account, rather than the underlying investments in the account. Both types of accounts can hold a variety of qualifying investments (see section on ‘Qualifying investments for the CTF’). However, the stakeholder account has a more restricted set of qualifying investments.

The stakeholder conditions apply to the entire stakeholder account. That is, the provider must make sure the overall account has an exposure to equities and is well diversified. With effect from 6 April 2017 lifestyling is no longer a requirement. The required means of payment, minimum subscription and charge cap apply to the overall stakeholder account, which encompasses all investments held within the account.

Investments in a stakeholder CTF

A variety of investments may be held in the stakeholder CTF, however a stakeholder CTF cannot hold directly the following investments:

• shares in an investment trust

• securities of an investment trust

• with-profits endowments or insurance policies

• units or shares in dual-priced collective investment schemes

• rights in dual-priced contracts of insurance

• shares in companies

• securities in companies unless the value of the securities is guaranteed not to fall below 80% of the original price paid

• cash in deposit accounts or share accounts with building societies where the interest rate is more than 1% below the Bank of England base rate

• depositary interests representing any of the above

Full details of the restrictions on the type of investments not allowed within the stakeholder CTF can be found in the ‘Restrictions on qualifying investments in a stakeholder CTF’ section.

However, the investments excluded above may be held indirectly in the stakeholder CTF — for example, where a single-priced collective investment scheme invests in shares of an investment trust, this is permissible.

Exposure to equities

The units, shares or rights held in a stakeholder CTF must have an exposure to equities. No minimum level of exposure to equities has been specified, giving providers the flexibility to modify the level to take account of market conditions.

Diversification and suitability

The provider must have regard to the need for diversification of investments in the stakeholder CTF, whilst bearing in mind the circumstances of the account.

In practice, diversification would require a spread of investments across a range of different markets, sectors and securities. The following types of investment strategy would not be regarded as suitable for a stakeholder CTF:

• a high proportion of high-risk bonds, whether long-dated or sub-investment grade

• high exposure to high-risk equities

• investment in derivatives (except for efficient portfolio management)

• a high level of currency risk

• high exposure to highly-geared firms or funds

Funds that are index trackers would meet these diversification requirements, as long as the index itself is adequately diversified. For example, a tracker fund for the FTSE All Share or FTSE-100 would meet the diversification requirement. Any other tracker that invested in a balanced portfolio of UK and overseas shares, fixed-interest securities, index linked stock and cash deposits would also be suitable.

The provider must also have regard to the purposes of the CTF in considering the suitability of investments, or any investment strategy or option proposed. This puts a general duty of care on the provider.

CTF subscriptions

Providers must accept subscriptions to the stakeholder CTF by cheque, Direct Debit, standing order, and direct credit. They are not required to accept other forms of payment, such as cash, credit card, debit card or any combination of these, but can if they so wish. There are no restrictions or requirements on payment methods for non-stakeholder CTFs.

Providers must accept a minimum one-off subscription of £10 to the stakeholder CTF (provided that the payment is an acceptable form of payment to the provider, which will include the required means of payments described in means of payment of subscriptions in the paragraph above.

Providers can offer to accept smaller amounts if they wish.

Charge capping

Providers can make charges for management and other expenses but they are capped. This means that a CTF provider’s management charges cannot not exceed 1.5% per annum of the value of a CTF stakeholder investment account that they have managed for a whole year.

The value of each stakeholder CTF is the sum of the value of the investments (including cash) held in the CTF, for example, the number of units multiplied by unit value. Costs included in the charge cap are:

• all distributing and marketing costs, including:
  • product development
  • advertising and promotion
  • acquisition
  • capturing client data
  • completion
  • submitting applications
• new business processing, including:
  • processing applications
  • compliance activity
  • issuing contract documentation
• ongoing administration, including:
  • collecting and investing contributions
  • contract accounting
  • investment management (excluding taxation and dealing costs)
  • account servicing (statements, updates, quotes and so on)
• claims administration, including:
  • processing instructions
  • realisation of funds (excluding any costs associated with selling assets)
  • payment
  • updating records

• fund management (excluding taxation or dealing costs)

• custodian charges

• legal and audit costs

Where the investments in the CTF are directly or indirectly held in a collective investment or life insurance vehicle, any management or administration fees charged in respect of investments held by the collective investment or life insurance vehicle must be included in the charge cap calculation if they fall into any of the categories in the costs included in the cap charge section above.

Certain expenses and charges can be deducted from a CTF before the investments in the CTF are valued and the charge cap calculated. These are:

• Stamp Duty, Stamp Duty Reserve Tax and dealing charges (including either direct or indirect, and any dilution levy) associated with the sale and purchase of investments in the CTF, (since 6 April 2017 lifestyling is no longer a requirement)

• any expenses incurred in complying with an order of the court or other legal requirements which could include costs associated with:
  • HMRC refunds
  • criminal including fraudulent action
  • suspension and forfeiture costs
  • divorce costs
  • recovery of excessive costs of bankruptcy
  • recovery of the proceeds of crime
  • all forms of taxation

• charges for provision of an annual report or accounts, where the registered contact has chosen to receive a copy of the report and accounts for any concern whose shares and units are held in the CTF

• associated charges where the registered contact has chosen to attend meetings of investors for any concern whose shares and units are held in the CTF, to vote, or to receive any other investor information

Any costs of an internal or external transfer of a CTF must be met from within the charge cap — no separate charge can be made to any individual CTF.

The provider must value each stakeholder CTF daily, weekly or monthly, and they must explain which method they will use to the registered contact in writing. The provider cannot change the method within 12 months of the last written notification.

Where the valuation is carried out weekly or monthly, the same specified day in the week or month must be used (or the day after if that day is not a working day). Also, the value on the day of valuation is assumed to be the value for each day, until the next time of valuation.

CTF applications

CTF terms and conditions

A CTF is a scheme of investment managed in accordance with the CTF regulations by the provider under terms agreed between the provider and the registered contact. The CTF must be held in the name of the child.

All children eligible for a CTF account should have one. HMRC no longer issues vouchers or replacement vouchers. Where, exceptionally, CTF entitlement is established after 1 January 2013 HMRC will contact providers on a case-by-case basis to arrange for a CTF to be opened.

Providers’ CTF terms and conditions must specify in writing that:

1. The CTF investments shall be in the beneficial ownership of the child.

2. Except for cash deposits, National Savings products and certain insurance policies (see below), the title to the CTF investments will be registered in:
   i) the name of the provider, or
   ii) the name of the provider’s nominee.

3. Where a share certificate or other document evidencing title to a CTF investment is issued, it will be held by the provider or as the provider may direct.

4. Where insurance policies are with an insurer who is also a provider, the title to the policies shall be vested in the registered contact, and the policy document or other document showing title to the insurance policy shall be held by the registered contact.

5. If the registered contact chooses, the provider will arrange for them to receive a copy of the annual report and accounts issued by every company or other concern in respect of shares, securities or units which are held directly in the CTF (a separate charge may be levied for this service).

6. If the registered contact chooses, the provider will arrange for them to:
   i) attend shareholders’, securities holders’ or unit holders’ meetings
   ii) vote and receive, in addition to the annual report and accounts, any other information issued to shareholders, securities holders or unit holders (a separate charge may be levied for these services)

7. The provider will make sure that any person he delegates any of their functions or responsibilities to under the terms agreed with the registered contact is competent to carry them out.

8. On the instructions of the registered contact and within the time stipulated by them, the CTF with all rights and obligations shall be transferred free of charge (except charges such as Stamp Duty and other dealing costs connected with disposal or acquisition of investments) to another provider.

9. Where an account is transferred to the provider it will be accepted free of charge (except charges such as Stamp Duty and other dealing costs associated with disposal or acquisition of investments).

10. (Where the provider offers both types of CTF) on the instructions of the registered contact and within the time stipulated by them, the CTF shall become a CTF of the other description (any necessary changes in the investments being made) free of expense (except expenses such as Stamp Duty and other dealing costs connected with disposal or acquisition of investments).

11. The provider may place a minimum period on the time for transfer stipulated by the registered contact (this period must not exceed 30 days, and should represent a reasonable period required for practical implementation of the transfer).

12. The provider must notify the registered contact if, because of any failure to satisfy the provisions of the CTF regulations, a CTF has, or will, become void.

Imaging vouchers, application forms and written declarations

The CTF voucher contained the child’s name and date of birth, their unique reference number, the amount of the government contribution and the voucher’s expiry date. The value of CTF vouchers differed according to the personal circumstance of the child.

HMRC no longer issues CTF vouchers.

CTF vouchers, declarations and application forms, transfer forms and registered contact applications can be scanned and stored in a digital form (black and white or in colour), and then the paper originals can be destroyed.

The digital images will be regarded as applications for the purposes of the CTF rules if:

• the image of the documents (and any hard copy printouts) are readable
• the provider can provide a hard copy of the imaged documents to HMRC within a reasonable time when requested

Since 6 April 2009 providers could open a CTF without seeing a voucher.

Since 1 January 2013, when a child’s entitlement to a CTF was established, HMRC has contacted providers on a case-by-case basis to arrange for a CTF to be opened.

Revenue allocated accounts

Where a voucher was issued, and a CTF was not opened within 7 days of the expiry date on the voucher, a provider who had agreed to accept Revenue allocated accounts was instructed to open a stakeholder CTF for the child. All Revenue allocated accounts must be stakeholder accounts.

When the provider confirmed that the CTF had been opened, HMRC issued a letter to the person who claimed Child Benefit for the child, informing them that the CTF had been opened, and providing details of the provider with whom the CTF is held.

In a small number of cases where a child was taken into care by a local authority soon after birth and before a Child Benefit claim was made, HMRC instructed providers to open a CTF for the child.

In a few cases the child’s parent made it clear that they did not want to be contacted by providers. In these cases HMRC gave the name of the correspondent as Mrs CTF Liaison Officer, with the address of the CTFO office in Washington. Following the closure of the CTF office, providers should mark those records to prevent future correspondence being issued (until a valid application to take on the registered contact role is received).

The registered contact

The registered contact

There can only be one registered contact at any time. The registered contact is the only person who can give instructions to the provider on management of the investments in the CTF.

The registered contact must be a person aged 16 or older. If the child is 16 or older, the child may choose to be the registered contact. If the child is under 16 only a person who has parental responsibility for the child can be the registered contact.

A person with parental responsibility can only be the registered contact until their role ends when the account holder becomes 18. Only the account holder can give instructions to their CTF provider when they reach 16 and take over the registered contact role, or when their account matures at 18.

A registered contact does not stop when the child is 16, but at this point the child has the right to take over the registered contact role. They can do this without the agreement of the existing registered contact.

The Share Foundation has been appointed to act as the registered contact for children who are looked after by local authorities. Children in local authority care can take over the registered contact role when they become 16. The Share Foundation stops being the registered contact when a child reaches 18.

Applying to be the registered contact

Where there is no registered contact, a person who satisfies the registered contact conditions can apply to become the registered contact.

Written application to be the registered contact

The application must contain:

• the applicant’s title (if any) first name, surname, and middle initials

• the applicant’s address, including postcode

• the child’s title (if any), first name, surname, and middle initials

• the child’s address, including postcode

• the child’s date of birth

• the child’s unique reference number

Providers can use the wording in the specimen form.

Applicants must make a declaration that the information given in the application is correct. The following declaration will satisfy the requirements of the regulations:

“I declare that:

• I am 16 years of age or over

• I am the child or I have parental responsibility for the child (delete the words that do not apply)

• I will be the registered contact for the CTF

• (where the application is not in writing) I authorise the CTF provider to record the terms of this declaration in a written declaration made on my behalf”

Declarations must also contain an agreement by the applicant to the CTF terms and conditions, and the applicant’s signature.

Applications must include certain authorities. The following authorities will satisfy the requirements of the regulations:

“I authorise [provider’s name] to hold the child’s HMRC contributions, subscriptions, CTF investments, interest, dividends and any other rights or proceeds in respect of those investments and cash, and to make on the child’s behalf any claims to relief from tax in respect of CTF investments.”

This authority continues until it is replaced following a change in registered contact, or transfer to another provider. If the existing registered contact stops being the registered contact, the previously-given authority continues until it is replaced.

Where The Share Foundation becomes the registered contact they are deemed to have agreed the existing terms and conditions of the CTF. They should not be asked to complete an application form but they are required to make the declaration and authorisation required by the regulations.

The application form to be a registered contact can be downloaded (this document will be downloaded to your device and is an 8.64kb ODT file).

Non-written application to be the registered contact

Where an application and declaration is made other than in writing (for example, by telephone, email or fax), the applicant is required to provide the same information, make the same declaration and provide the same authority and other information as for a written application (see Written application to be the registered contact). The applicant’s signature is not required.

On receipt of the application, the provider must make a written declaration on behalf of the applicant and notify the applicant of its contents. Notification can be done in several ways:

• the declaration can be read back to the applicant over the phone, or in face-to-face contact

• a copy of the declaration can be sent back via email or the internet

• a copy of the declaration can be faxed or sent by post

The telephone check list below can be downloaded to help you.

Applications to be the registered contact can be scanned and stored digitally in the same way as applications to open the CTF.

CTF providers can accept an application to be the registered contact over the telephone. There is a downloadable document with a set of questions for phone applicants (this document will be downloaded to your device and is an 8.71kb ODT file).

Change of registered contact

A person cannot take over as the registered contact for a CTF account without the existing registered contact confirming that they agree not to be the registered contact. Without that confirmation the registered contact cannot be changed. The confirmation does not need to be in writing.

The agreement of the existing registered contact is not needed, and should not be requested, in the following cases:

• on the death or incapacity of the registered contact

• where the registered contact cannot be contacted

• where the existing contact is shown as Mrs CTF Liaison Officer (see section on ‘Revenue allocated accounts’) and the new registered contact is a person with parental responsibility

• where a court order which placed a person as a responsible person for the child has expired

• where a court has given a Special Guardianship Order

• where a court orders that the person who is the registered contact must stop

• where the new registered contact has been appointed to be a guardian or special guardian of the child

• where the new registered contact has adopted the child under an adoption order (but refer to the section covering where the Share Foundation is the existing registered contact)

• where The Share Foundation becomes the registered contact

• where the child has reached the age of 16 and has indicated they want to take on the registered contact role

In the case of:

• death

• incapacity

• adoption (where the registered contact applicant claims to have adopted the child)

• replacement of the current registered contact by court order

Providers should satisfy themselves that this is so, either by sight of suitable documentation, or from other evidence they hold.

A CTF account cannot be operated under a power of attorney or court order for the registered contact, unless the child is the registered contact. The power of attorney and court order is given by or on behalf of the donor (in this case the registered contact) and it allows the attorney to take decisions about the donor’s own property. The CTF account is not the donor’s property, so where the registered contact lacks the capacity to make decisions about the CTF account, the registered contact needs to be replaced.

Where the registered contact cannot be contacted, for practical purposes a provider can assume that contact has been lost with a registered contact when they have not received any communication from the registered contact within the previous 12 months, and an item of post has been returned undelivered.

If a provider is contacted by a person wishing to become the registered contact for a CTF, and that person asks the provider for details of the existing registered contact, the provider should consider whether they should release this information under their data protection obligations.

If The Share Foundation is the registered contact for a CTF and another person asks to become the registered contact the provider should tell them that The Share Foundation is the registered contact. They should advise the person that there is already somebody assigned as registered contact.

The registered contact cannot be changed without permission from The Share Foundation. CTF providers should tell The Share Foundation that somebody is trying to apply to be the registered contact.

Where an adoptive parent tells the provider that they want to become the registered contact, the provider must not give any details about the existing registered contact or seek the agreement of the existing registered contact to the change. Once the provider has verified the adoptive parent, the provider must update the details held on their systems immediately to make sure that in these very sensitive cases any correspondence only goes to the correct contact. But see the paragraph covering where The Share Foundation is the existing registered contact.

The role of The Share Foundation

Local authorities will inform the Share Foundation when they are looking after a child with a CTF that does not have anyone (or anyone appropriate) with parental responsibility for the child.

The Share Foundation will assume management of the accounts, either until someone with parental responsibility becomes available or until the child reaches the age of 16 and wishes to manage their own account. The Share Foundation will make the declaration and authorisation to the provider required by regulations.

Subscriptions to a CTF

Who can subscribe to a CTF

Any person can subscribe to a CTF by making a payment of money. Transfers of shares or other investments into the CTF is not allowed. The person subscribing does not need to be resident in the UK, nor do they have to be related to the child in any way. Subscriptions to the CTF can be made even if the child is not in the UK.

It must be made clear a subscription made to a CTF is a gift to the child and cannot be repaid if subscriber changes their mind or the payment was made in error. CTF providers can explain this on deposit slips, account information leaflets, their web site, banking applications or verbally for a telephone subscription.

The CTF regulations do not require that the subscriber give a formal signed agreement. To avoid errors providers are advised to make sure that subscribers provide the child’s unique reference number as well as the child’s name.

When a subscription is made to a CTF without contacting the CTF provider, for example, by a bank transfer it can be accepted and the CTF provider does not have to explain to the subscriber that they have made a gift to the child.

When can subscriptions to a CTF be accepted

Since 6 April 2020, the annual subscription limit for how much can be subscribed to a CTF in any subscription year is £9,000 (previously £4,368 from 6 April 2019). Any part of the limit which is not used is lost — it cannot be carried forward or back to other subscription years. Providers must make sure that subscriptions in any subscription year do not exceed the limits. Government contributions do not count toward the subscription limit, nor does any interest, dividends or other income arising from the investments held in the CTF.

The child, the child’s parents or other relatives, local authorities, charities or any other person can subscribe to the CTF. All subscriptions must be made in cash, which may include payment by cheque, Direct Debit, charge card, credit card, direct credit and standing order. CTF rules do not require providers to identify or record the identity of the third party contributor. The registered contact cannot prevent any subscription to the CTF.

The Welsh Government made payments to the CTFs of Welsh children, but these payments ceased at the end of January 2011.

Subscriptions by cheque are valid pending clearance of the cheque. If the cheque is not honoured then no subscription has been made and the figure on the cheque will not count toward the subscription limit. Any subscriptions returned to a subscriber under the Direct Debit Indemnity Scheme are treated in the same way.

The CTF regulations allow subscriptions by lump sum, or by regular or irregular periodic payment, provided the subscription limits are not exceeded. The provider may impose conditions, such as a minimum lump sum subscription, except for stakeholder CTFs, where the provider must accept single subscriptions of £10 or more.

The date of subscription may be important where two or more parties wish to subscribe to the CTF, and one of the subscriptions is greater than the amount of unused subscription limit. This is how to determine which subscription is the earliest:

For cheques, use the date that the cheque is received and accepted by the provider (but cheques that are not honoured do not count towards the subscription limit)

For Direct Debits, either the date that the provider applies to draw on the Direct Debit, provided that the cash transfer takes place in due course, or the date that the provider is authorised to draw on the Direct Debit, provided that the cash transfer takes place in due course (if that date is earlier than the date the Direct Debit is received and accepted, then the date of subscription is the later date). A provider can use either method but must do so consistently and apply it to all Direct Debits.

If the subscription is made by debit card, charge card or credit card, use the date the authorisation is given by the subscriber. If it is by direct credit and standing order, use the date that the subscribed funds are received by the provider.

Once a subscription is made to a CTF, the cash (and any investments bought with the cash) are beneficially owned by the child. The subscriber cannot recover their subscription, nor can they (unless they are the registered contact) give any instruction as to how the cash is to be managed or used in the CTF.

The direct transfer of shares or other investments other than cash into a CTF is not allowed. Investments held by a person outside a CTF can be sold, and the proceeds subscribed to the CTF. The sale of the investments is a disposal for capital gains purposes.

Subscription year

The subscription year normally runs from the child’s previous birthday to the day before their next birthday. When a CTF is opened, the subscription year starts on the date it is opened and ends on the day before the child’s next birthday. For a child born on the 29 February, the subscription year runs to the 28 February for all years.

Feeder accounts

Since 6 April 2020 the annual subscription limit is £9,000 in any subscription year. Amounts higher than that cannot go into the CTF until the start of the next subscription year. Providers can set up feeder accounts for excess subscriptions but they are not required to do so under the CTF rules.

The feeder account is not a CTF, and will be treated in the same way as any other children’s savings account for tax purposes.

Direct Debit Indemnity Scheme

Under this scheme, where money is taken out of an account by Direct Debit by mistake, the account holder can claim it back. The account holder’s bank repays the money to the account holder, and claims back that amount from the recipient. Subscribers to a CTF might make a claim under the Direct DebIt Indemnity Scheme.

In cases where the subscriptions are reclaimed under the Direct Debit indemnity scheme the subscription will be treated as not made (in the same way as for a failed cheque). If any tax relief on interest has been claimed from HMRC in respect of the unwound subscription it must be repaid to HMRC, and any interest arising may be subject to deduction of tax. A subscription made by Direct Debit may not be unwound unless a successful claim is made under the indemnity scheme.

Generating a cash subscription by disposing of existing investments

Investments held by an individual outside a CTF can be sold, and the proceeds subscribed to a CTF. Subscribers and providers should note that the sale of investments is a disposal for capital gains purposes.

The CTF subscription can be used to buy back often the same investments (but not necessarily so) within the CTF provided certain conditions are met. This is a share exchange (sometimes called ‘Bed and CTFing’) which can apply to units as well as shares.

The conditions that must be met are that:

a) the investments must not be purchased from the investor’s spouse, civil partner or from the investor

b) the investments must be bought at the open market price

c) any Stamp Duty or Stamp Duty Reserve Tax paid on the purchase of CTF investments must be paid out of cash held in the CTF

d) the funds generated by the disposal of the investor’s shares must be available to meet the purchase on settlement day

The subscription date can be the date on which the investor’s shares or units are sold, the settlement date for the purchase, or any date in between that the investor chooses, provided condition (d) is met.

An existing insurance policy cannot be directly transferred into a CTF. However, an existing policy can be surrendered, and the proceeds used to subscribe to a CTF. The surrender would be a chargeable event and may give rise to a capital gain, unless it is a ‘time served’ qualifying policy. A subscription could also be made from the proceeds of a part surrender. Part surrenders may also be chargeable events.

Building society bonus payment

Building societies can pay bonuses to their members in respect of the products they hold and this can include children who hold a CTF account. Bonuses paid in respect of CTF accounts are exempt from tax and do not count towards the annual CTF subscription limit if they are paid directly into the CTF account.

The definition of building society bonus for CTF purposes specifically excludes any bonus arising from demutualisation, merger or sale of a building society subsidiary.

Qualifying investments for the CTF

Qualifying investments in the CTF

The investments that providers may purchase, make or hold in a CTF are:

• qualifying shares

• qualifying securities

• gilt edged securities

• strips of gilt-edged securities or any securities issued on or behalf of a government of any EEA state

• shares in qualifying investment trusts

• units or shares in a UK Undertakings for Collective Investment in Transferable Securities (UCITS) or a recognised UCITS

• depositary interests

• cash deposits

• units or shares in non-UCITS retail schemes

• alternative finance arrangements

• policies of life insurance

• certain core capital deferred shares

• securities, other than National Savings certificates, Premium Savings Bonds, National Savings Stamps and National gift tokens, issued under the National Loans Act 1968 or the National Savings Bank Act 1971, on terms which provide for them to be held in the CTF

All other kinds of investments are not qualifying investments and may not be held in a CTF.

Certain qualifying investments may not be held in a stakeholder CTF — for further details of these see the section on Restrictions on qualifying investments held in a stakeholder CTF.

Qualifying shares

Qualifying shares are shares, not being shares in an investment trust, issued by a company which is incorporated anywhere in the world, and which are either:

• officially listed on a recognised stock exchange, including Co-operative Societies and Community Benefit Societies (Industrial and Provident Societies in Northern Ireland)

• admitted to trading on a recognised stock exchange in the EEA (shares admitted to trading on EEA markets included in Tables 1 and 2 published on GOV.UK can qualify for the CTF if they satisfy the other requirements in this paragraph)

Qualifying shares do not include, for example:

• shares in unquoted companies

• shares traded on Ofex

• nil paid rights (purchased in the market by the provider)

• warrants to subscribe for shares (see the section below that covers these)

Qualifying securities

Qualifying securities are securities which have been issued by a company, which is incorporated anywhere in the world, and which satisfy at least one of the three conditions set out below.

Securities in an investment trust are qualifying investments provided the securities meet at least one of the three conditions set out below and the trust has no eligible rental income (defined in section 508A of the Income and Corporation Taxes Act 1988).

The three conditions of which at least one must be satisfied are that the securities, the shares in the company issuing the securities, or the company issuing the securities is a 75% subsidiary of a company whose shares are listed or admitted to trading on the official list of a recognised stock exchange.

Shares in investment trusts

Shares in an investment trust listed or admitted to trading on the official list of a registered Stock Exchange are qualifying investments for the CTF. This includes shares with warrants attached purchased by the provider in the course of a public offer.

Where providers apply for shares in an investment trust using cash within a CTF they may retain in the CTF any warrants attached to the shares acquired in the course of the public offer. Any warrants received subsequently are not qualifying investments and must be sold. New issues of warrants offered to existing shareholders only cannot be taken up or held in the CTF.

Depository interests

UK regulation requires securities to be electronically settled (in CREST). For companies registered outside the UK, this is achieved through a depositary interest (DI) mechanism. The DI is effectively an electronic ‘wrapper’ around the ordinary share, to facilitate securities to be held electronically rather than in paper form. A company applies for DIs representing ordinary shares to be admitted to CREST with effect from its admission to the market.

When checking the details of international shares officially listed on the Registered Stock Exchange (RSE) or admitted to trading on the Alternative Investment Market (AIM), the descriptor of each security will identify the listed or traded instrument (for example ordinary shares).

Reference to DI in the descriptor simply confirms that the shares are settled electronically through CREST, and therefore is not relevant in determining CTF eligibility (because it is the shares that are listed or admitted to trading, not the DI).

Depositary receipts

A depositary receipts (DR) is a type of security and should not be confused with depository interests. A DR can be held in an Individual Savings Account (ISA) providing the underlying shares represented by the DR are in the beneficial ownership of the holder and are themselves ISA qualifying. It is irrelevant for CTF purposes whether the DR is listed or traded on a RSE.

Where the listed or traded instrument is a depository receipt, for example a global depository receipt (GDR), the descriptor will clearly state this. This can be checked on the UKLA Official List for listed investments.

American depositary receipt and American depositary share

An American depositary share (ADS) is a vehicle for foreign corporations to list their ordinary equity on an American stock exchange. Foreign corporations are not permitted to make direct secondary listings on American stock exchanges, so this form of indirect ownership has been devised. ADSs enable US investors to buy the securities of a foreign company without the accompanying risks or inconveniences of cross-border and cross-currency transactions.

ADSs are dollar denominated and each share represents one or more underlying shares in the foreign corporation. An American depositary receipt (ADR) is a physical certificate evidencing ownership in one or several ADSs. The terms ADR and ADS are often used interchangeably.

The decision of the first tier tribunal in the Stamp Duty Reserve Tax case of HSBC Holdings and Bank of New York Mellon v Commissioners for HMRC, UKFTT 163 (TC) has shown that in some cases where an ADR is involved, beneficial ownership may not rest with the underlying investor.

Where a DR is issued in the UK, HMRC’s view is that the holder of a DR is the beneficial owner of the underlying investment(s), so the DR can be a qualifying investment.

Where a DR is issued outside the UK the question of whether the holder of the DR is the beneficial owner of the underlying investment(s) will be determined by reference to the law of the territory in which the DR is issued. Information on beneficial ownership may be provided to investors by the depository.

Where the relevant law means that the holder of a DR is not the beneficial owner of the underlying investment(s), the DR cannot be a qualifying investment that can be held in a stocks and shares ISA.

Where beneficial ownership of the underlying investment(s) cannot conclusively be determined by reference to the law governing the arrangements relating to the issue of the DRs, for tax purposes HMRC will continue to determine beneficial ownership according to its understanding of the principles of UK law. This means that HMRC will continue to apply its long-standing practice of regarding the holder of a DR as holding the beneficial interest in the underlying investment(s).

CTF providers should therefore check the terms and conditions and any other documentation related to the DR for any reference to the beneficial ownership of the underlying investment(s). In the absence of any conclusive information to show that the holder of the DR is not the beneficial owner of the underlying investment(s), the CTF provider can assume that the holder of a DR is the beneficial owner, so the DR can be a qualifying investment.

Where the holder of the DR is the beneficial owner of the underlying investment(s), a practical test that managers can apply to determine whether the DR is a qualifying investment is to look through the DR to the underlying investment(s) represented by the DR. This might require looking through intermediaries. If all the underlying investments (other than cash) would be qualifying investments for the CTF if held directly by the investor, the DR will be a qualifying investment.

If the investor holds an ADS or ADR that is traded on a US stock exchange, the underlying investment is the shares represented by the ADS or ADR. If these shares are officially listed on a recognised stock exchange, the ADS or ADR will be a qualifying investment for stocks and shares CTF.

In some cases the investor cannot hold shares directly (for example, when the shares are issued in the form of a global note). The test should then be applied as if the investor were capable of holding the shares.

The CTF regulations list investments that can be held in a CTF. They do not list those that cannot be held. In the same way, we cannot produce a complete list of DIs that do not qualify. Here is a list of a few of the DIs that would not qualify:

• DIs representing short-term loan notes

• DIs representing cash

• DIs representing a basket of investments where any of the investments would not qualify for a CTF

Cash

Any cash subscribed to or held in a CTF must be in sterling and must be deposited in an account with a deposit-taker, a deposit account or a share account with a building society, which is designated as a CTF.

The CTF-designated account may also include other savings products, such as feeder funds and current account balances provided the account is designated as a CTF account and the monies relating to each product are recorded and can be accounted for separately. The same account may also be designated in other ways, for example if the account also holds ISA cash, the account may be named the CTF and ISA Client Money Account.

Where a person wishes to subscribe currency other than sterling to a CTF where the cash is held in sterling, the amount subscribed must be converted to sterling before it can be subscribed to the CTF.

Units or shares in non-UCITS retail schemes

Non-UCITS retail schemes are defined in the COLL. In order for the shares or units in a non-UCITS retail scheme to qualify for the CTF the instrument constituting the scheme must provide for redemption of the units or shares no less frequently than bimonthly.

Alternative finance arrangements

Savings under alternative finance arrangements falling within section 47 or 49 of the Finance Act 2005, for example Sharia accounts, qualify for the CTF.

Policies of life insurance

A policy of life insurance (as determined under general law) is a qualifying investment for a CTF if:

• the policy is on the life of the child only (joint life, multiple life and life of another policies are not allowed)

• the terms and conditions of the policy provide that:
  • the policy may only be owned or held as a qualifying investment for a CTF
  • the policy shall terminate automatically if it comes to the notice of the provider that that it fails to meet the requirement that it falls within section I or 3 of Part 2 of Schedule 1 to Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 if it includes subsidiary benefits such as a sickness, critical illness, accident or waiver of premium benefit
  • the proceeds from the termination of the policy, or the partial surrender of the rights conferred by the policy cannot be paid to the child whilst the policy is held in the CTF
  • the policy, the rights conferred by the policy and any share or interest in the policy or rights respectively, are not capable of assignment or assignation, other than that the policy may be transferred within the CTF from one provider to another (but see paragraph about insurance policy investments and providers who are insurers in the section ‘External transfer’) and the rights may vest in the personal representatives of a deceased child

• the policy evidences or secures a contract of insurance which either falls within section I or 3 of part 2 of schedule 1 to the Financial Services and Markets Act 2000 2000 (Regulated Activities) Order 2001, or would fall within either of those sections if the insurer was a company with permission under part 4 of the Financial Services and Markets Act 2000 to effect or carry out contracts of insurance (for example, if the body is an EU insurer providing insurance on a services basis and subject to home state authorisation in accordance with article 6 of the First Council Directive 79/267/EEC)

• the policy is not:
  • a contract to pay an annuity on human life
  • a personal portfolio bond within the meaning of section 516 of the Income Tax (Trading and Other Income) Act 2005
  • a contract, the effecting and carrying out of which constitutes ‘pension business’ within the meaning of section 431B(1) of the Income and Corporation Taxes Act 1988
  • after the first payment in respect of a premium in relation to the policy has been made, there is no contractual obligation on any person to make any other such payment
  • no sum may be lent to the child, or the registered contact, or at their direction, by arrangement with the insurer with whom the policy is held

Where the account provider is an insurance company or a friendly society and the investments in the CTF include a life insurance policy the title to that policy, and the policy documentation evidencing the title, must be held by the registered contact (see section on the ‘Registered contact’).

Where CTF subscriptions are applied as premiums under a CTF policy, and the subscriptions are payable in instalments, there must be no obligation to pay any instalment (or any premium) other than the first one. But this does not prevent subscriptions being made by Direct Debit or standing order arrangements. Regular premium policies including ‘qualifying policies’ (schedule 15 of the Income and Corporation Taxes Act 1988 defines a ‘qualifying policy’) are not permissible investments.

A policy may satisfy the requirement that it falls within section I or 3 of part 2 of schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 if it includes subsidiary benefits such as a sickness, critical illness, accident or waiver of premium benefit.

If there has been a breach of any of the conditions in the section on Policies of life insurance, and the breach cannot be repaired (see the section on Repairing CTFs), or has not been remedied in a reasonable time, then the policy shall automatically terminate.

Restrictions on qualifying investments held in a stakeholder CTF

Certain types of investment may not be held directly in a stakeholder CTF, although they may be held indirectly through a qualifying relevant collective investment scheme, such as a UK UCITS or a recognised UCITS.

The investments that cannot be held directly in a stakeholder CTF are:

• shares in an investment trust

• securities of an investment trust

• rights in with-profits endowment policies

• rights under a contract of insurance in a with-profits fund

• units or shares in a relevant collective investment scheme unless it is a requirement of that scheme that the purchase and sale price of those units shall, at any given time, not differ from each other and that the price must be made available to the public on a daily basis

• rights under a contract of insurance which are expressed as shares in funds held by the insurer unless it is a requirement of the contract of insurance that the purchase and sale price of those shares shall, at any given time, not differ from each other and that the price must be made available to the public on a daily basis

• shares issued by a company wherever incorporated and officially listed on a recognised stock exchange

• securities issued by a company and securities under the National Loans Act 1968, unless the contract entered into for purchase of the securities or gilt strips (or any other contract) has the effect that the value of the securities or gilt strips cannot at any time fall below 80% of the consideration paid for the securities or gilt strips whilst they are being held in the CTF

• cash held in deposit accounts, or in a building society share account, unless the interest payable on a daily basis is paid at a rate not less than 1% below the Bank of England base rate (where the base rate increases the interest rate for the deposit account must satisfy this condition within one month of the date of increase)

• depositary interests, where the investments concerned are investments of any of the kinds listed above

Shares being brought to listing

Providers may apply for shares being brought to listing on behalf of a child using cash from within a CTF provided:

• they will be qualifying shares (see the section on ‘Qualifying shares’) or shares in a qualifying investment trust within 30 calendar days of the date on which the shares are allotted or allocated

• they were not allocated in connection with the allocation of other shares, securities or units

Providers can use cash held in a CTF to apply for public offer shares brought to the market by an offer for sale, or an offer for subscription. Providers cannot use cash held in a CTF to purchase shares brought to the market by an intermediaries’ offer, or a placing.

Shares paid for in instalments

Providers must meet any instalment due in respect of the shares held in the CTF from funds within the CTF. The instalment payments may not be funded from cash held outside the CTF. If sufficient funds are not held in the CTF, investments held within the CTF may be sold to meet the instalment.

Changes to investments held in the CTF

The most common examples of a change to an investment are:

• takeovers

• demergers

• capital reorganisations (other than a rights issue or bonus issue)

• rights issues

• bonus issues

Providers may take up any offer to shareholders in respect of investments held in the CTF. Whether the resulting shares can be held in the CTF will depend on whether they are qualifying investments. Where the new investments are qualifying investments, they can remain in the CTF. Where they are not qualifying investments, providers must sell them within 30 calendar days of the date they became non-qualifying investments and the proceeds must remain in the CTF. If the non-qualifying investments are not sold within the 30 days, the CTF must be repaired (see the section on ‘Repairing CTFs’).

Complex reorganisations often involve more than just the issue of one set of new investments. There could, for example, be a bonus issue of shares, which are replaced in turn by other shares, which are then sold, or converted to other investments. If the intermediate investments are not eligible for a CTF then, strictly, the final investments, or cash proceeds, cannot be held in the CTF even if the final investments themselves are eligible.

However, where ineligible investments are issued as an intermediate stage, and those investments are short-lived, or are automatically replaced by cash, CTF Support will consider whether it is possible to look through the intermediate stages and apply the qualifying investments guidance to the initial and final investments alone. If a reorganisation involves intermediate ineligible investments providers should submit full details to CTF Support and, if possible, well before the planned reorganisation date.

Rights issues and other offers to shareholders

Providers may use only cash within the CTF to take up rights issues and other offers for qualifying investments. Providers must reinvest in the CTF any proceeds received from lapsed rights. The proceeds do not count as a subscription.

Bonus issues

Providers must add to a CTF bonus issues of shares or units received in respect of an investment held in the CTF, provided the shares or units in the bonus issue are qualifying investments. Such bonus issues do not count towards the CTF subscription limit. Where they are non-qualifying investments, providers should follow the qualifying investments guidance.

Connected accounts

A deposit account, or share account with a building society, in a CTF must not be connected to any investment held by the child or any other person other than an ISA, Junior ISA or a CTF.

A CTF is connected with another investment if it was:

• opened or acquired with reference to the other investment

• opened or acquired with a view to enabling the other investment to be opened on particular terms, or facilitating the opening of the other investment on particular terms (and the terms on which the CTF was opened would have been significantly less favourable if the other investment had not been opened or acquired)

HMRC will accept that a deposit or share account is not connected to a CTF if it is a feeder account opened to enable subscribers to fund future deposits into the CTF, provided that the interest on the feeder account is in line with the interest paid on the provider’s other savings accounts.

Is the investment a qualifying security

To find out if the investment is a qualifying security, answer the following questions:

1. Is the investment a security?
   If the answer is no, the investment is not a qualifying security.
   If the answer is yes, move on to the question below:

2. Is the security is issued by a company?
   If the answer is no, the investment is not a qualifying security.
   If the answer is yes, move on to the question below:

3. Is the company issuing the security a 75% subsidiary of a company whose shares are listed or admitted to trading on the official list of a recognised stock exchange?
   If the answer is yes, the investment is a qualifying security.
   If the answer is no, move on to the question below:

4. Are the shares in the company issuing the security listed or admitted to trading on the official list of a recognised stock exchange?
   If the answer is yes, the investment is a qualifying security.
   If the answer is no, move on to the question below:

5. Are the securities listed or admitted to trading on the official list of a recognised stock exchange?
   If the answer is yes, the investment is a qualifying security.
   If the answer is no, the investment is not a qualifying security.

Management of the CTF

Delegation of the provider’s functions

Providers may arrange for a third party to carry out some or all of their administrative functions. But where administrative functions are delegated, providers remain responsible for the operation of the CTF.

Providers may offer CTFs where the registered contact makes investment decisions (self-select CTFs). In these circumstances, providers remain responsible for ensuring that investments purchased in the CTF are qualifying investments.

Purchasing investments

Providers must make purchases out of cash held in the CTF at the time the investments are paid for and must not allow a CTF to go into a cash deficit.

Where a provider also acts as the manager of an authorised unit trust, subscriptions used to purchase units in that authorised unit trust may be deposited in an account which is not designated as a CTF.

Providers may not purchase investments into the CTF from the child, or the husband, wife or civil partner of the child.

Where an authorised fund is a dual priced unit trust, all purchases must be made at the maximum sale price of a unit of the relevant class at the relevant valuation point within the meaning of, and complying with, the requirements of chapter 6 of the COLL.

Where an authorised fund is a single priced unit trust or an open-ended investment company, all purchases must be made at the price of a unit of the relevant class at the relevant valuation point within the meaning of, and complying with the requirements of chapter 6 of the COLL.

In all other cases all purchases must be made at the price for which those investments might reasonably be expected to be purchased in the open market.

Providers may purchase units and shares in tranches to meet the aggregate requirements of registered contacts. Where the rules of the FCA require the provider to attribute a uniform price by calculating a weighted average of the prices paid for all transactions in the same allocation period, then that uniform price may be treated as the price for which those investments might reasonably be expected to be purchased in the open market.

In any other case, where providers make a series of purchases, each CTF involved must reflect its share of each purchase price. An ‘average’ price may not be used.

Selling investments

Providers must sell CTF investments at the price they might reasonably be expected to be sold in the open market.

Policies of life insurance in the CTF cannot be sold.

CTF account administration charges

Where the registered contact has elected to receive a copy of the annual report and accounts; attend meetings of investors; vote or receive any other investor information for any concern whose shares or units are held in the CTF, charges for the provision of any or all of these services (see section on ‘CTF terms and conditions’) can be paid from funds held outside the CTF, and will not count as a subscription to the CTF.

Charges for Stamp Duty, Stamp Duty Reserve Tax or dealing charges associated with the sale or purchase of investments in the CTF, and charges agreed between the provider and registered contact for management of the CTF, must be met using cash within the CTF.

Market value

For shares or qualifying securities listed in The Stock Exchange Daily Official List, providers should take the value computed by reference to section 272 Taxation of Chargeable Gain Act 1992. That is, normally, either:

a) the lower of the two prices shown in the quotations for the shares in The Stock Exchange Daily Official List on the relevant date plus one quarter of the difference between those two figures (commonly referred to as the ‘quarter up rule’)

b) halfway between the highest and the lowest prices (commonly referred to as the ‘middle market’ quotation) at which bargains, other than bargains done at special prices, were recorded in the shares for the relevant date

Providers should take the amount at (a) if it is smaller than the amount at (b), or there were no such bargains as at (b). Otherwise they should take the amount at (b).

If the London trading floor was closed on the relevant date, providers should determine the market value by reference to the previous date or earliest subsequent date on which it is open, whichever affords the lower market value.

The market value of units is the price at which unit trust providers are prepared to buy units from unit holders, known as the bid price. Unit trust providers publish this price on a daily basis. Where the bid price was not published at the date for which the valuation is required, providers should use the bid price on the latest day before. Providers should note that the market value is not reduced by exit, redemption or withdrawal fees.

The market value of shares in open-ended investment companies is the price at which the company is prepared to buy shares from shareholders. Open-ended investment companies publish this price on a daily basis. Where the price was not published at the date for which the valuation is required, providers should use the price on the latest day before.

Compensation for CTF errors

Where, in error, a provider fails to purchase or sell specific investments within a CTF as required under the customer agreement, and the value of those investments has subsequently increased or decreased respectively, the provider may be liable to, or agree to, pay compensation to the child.

Sums paid as compensation for loss of income and capital growth must be paid by the provider into the CTF and will not count towards the subscription limit and should not be recorded as such. The provider should, in all cases, retain evidence of the circumstances in which compensation was paid.

Any compensation paid in respect of a delay in accepting a subscription to a CTF can be paid outside the CTF, to the child, registered contact or subscriber as appropriate. The compensation can be subscribed to the CTF by the recipient, or can be paid by the provider directly into the CTF, without it going by way of the recipient, but in both cases it will count as a subscription for all purposes.

Pre-funding a CTF

Providers may pre-fund amounts to a CTF up to amounts eligible to be claimed from HMRC in respect of tax deducted from interest, or in respect of government contributions without counting towards the subscription limit.

Using a CTF as security for a loan

A CTF cannot be used as security for a loan. Any assignment of, or agreement to assign investments in a CTF, and any charge on or agreement to charge the investments in a CTF has no standing in law. It is ineffective.

Stock lending

Stock lending is a transaction where somebody ‘borrows’ securities from another person by taking a transfer of the securities from that person in order to enable the ‘borrower’ to fulfil a contract to sell securities of that kind to a third person.

In return the ‘borrower’ promises to transfer securities of the same kind to the person from whom they have ‘borrowed’ the securities that have gone to the third person and to compensate the ‘lender’ for any dividends which would have been received during the loan period when they do so.

‘Lending’ of this sort by a provider is not compatible with their duties as a provider. The title to investments must be vested in the provider or their nominee, or jointly in one of them and the registered contact, the share certificate must be held by the provider or as they may direct and, above all, the investments must be in the beneficial ownership of the child.

None of this is compatible with an arrangement under which the investments are sold to a third person and subsequently replaced by different investments of the same kind.

If the CTF holds units or shares in a collective investment scheme, the scheme manager may lend scheme investments, as the title to the investments held in the CTF (units or shares in the scheme) does not change.

Changes in the management agreement

Change in the management agreement sufficient to trigger cancellation rights under the Distance Marketing Directive cannot take effect until after cancellation rights have expired. The existing management agreement remains effective until that time.

Repairing CTFs

A CTF must be repaired in all circumstances except where the child in question is not eligible for a CTF, or where the child already has another valid CTF. In all cases HMRC will instruct the provider where a CTF is to be voided. A provider should never void a CTF except in accordance with those instructions.

Providers should keep a detailed record of all CTFs repaired (to be made available at the next HMRC inspection). Repaired CTFs will be treated for all purposes as if they had been valid at all times, except for determining whether a penalty is chargeable (see section on ‘Recovery and penalties’).

The examples below cover most of the errors that could give rise to a repair, but it is not an exhaustive list. If a provider finds other situations where they are unclear as to how to repair the CTF they should contact CTF Support.

Repairs — removal of excess subscriptions

Excess subscriptions, investments purchased with those subscriptions and any income arising on those subscriptions or investments must be removed from the CTF and returned to the subscriber or to the child as circumstances require.

Any tax claimed from HMRC on income arising on the excess subscriptions, must be recovered by the provider, normally by deduction from the next claim under the heading Adjustments to previous claims.

Any income arising on the excess subscriptions or investments purchased with the excess subscriptions is subject to tax, and the person to whom the excess subscription is returned should be informed.

In many cases identification of the investments acquired with excess subscriptions will be simple — there will have been one subscription to the CTF and purchase of one type of investment.

In some cases, identification of the investments acquired with excess subscriptions will be more difficult. The provider can select the investments that represent the excess subscriptions, either by taking a fraction of the investments held in the CTF at the date of repair which represents the excess subscriptions, or by following the subscriptions through the CTF and identifying the relevant investments.

Where a CTF includes a life insurance policy and excess subscriptions have been applied as premium to the policy, the CTF may be repaired by making a part surrender of the policy of an amount equal to the over-subscription and withdrawing that amount from the CTF. No tax will be charged on any chargeable event gain arising from the part surrender and there will not be a requirement to terminate the policy in these circumstances, but the provider may be liable to a penalty see section on ‘Recovery and penalties’.

Repair — incomplete or incorrect registered contact application form

The registered contact should be asked to complete the form, or complete a new form with a reference to the original form. If the registered contact refuses to do so, they must be removed as registered contact. The CTF is then treated as repaired and no further action is needed.

Repair — non-qualifying investments

If the provider finds that non-qualifying investments are held in a CTF the CTF must be repaired by selling the non-qualifying investment, except if it is a life insurance policy. In that case, the policy must be surrendered. Insurers should not provide the wrong sort of policy as a CTF investment.

The proceeds of the sale or surrender of the investments must remain within the CTF and be used to buy qualifying investments, which need not be of the same type as the investments sold or surrendered. Any income, capital gains or chargeable event gains arising on these non-qualifying investments is taxable in the same way as if the CTF was made void (see the section on ‘Void CTFs’), except of course the proceeds will not be returned to the child at this stage.

Recovery of government contributions

Government contributions to a CTF must be repaid where instructed by HMRC.

In all cases where a recovery of government contribution from a CTF is required HMRC will write to the person claiming child benefit for the child explaining why the recovery has been made. If the registered contact approaches the provider with queries on the recovery they should be asked to contact HMRC.

Where a CTF is voided, the provider will receive a letter from HMRC requesting that the CTF be voided, and requesting repayment of all the government contributions made to the voided CTF, together with a payslip. Where a recovery is to be made without voiding the CTF, the provider will receive a letter from HMRC requesting repayment of part of the government contribution (a partial recovery).

The CTF will remain open following a partial recovery.

The amount to be returned to HMRC will be the value of the investments purchased with the overpaid government contribution plus any interest or gains and less any losses arising on those investments. The amount returned will in most cases not equal the original amount of the government contribution and could be less than the amount of the government contribution.

Where a CTF is voided and there have been no contributions to the CTF, all the funds arising from sale of the investments (or the balance of the account in the case of a cash CTF) should be returned. Where there have been contributions, or where there is a partial recovery, then the investments in the account must be apportioned, and only that part of the investments representing the government contributions, together with interest, gains and losses should be returned (see the section on ‘Void CTFs’).

Providers can identify the investments representing the government contributions exactly, taking into account date and value of purchases and sales, changes of interest rate and so on. Alternatively, they can adopt any other method of apportionment that gives a fair result, provided the method is applied consistently.

Voiding the CTF does not mean that the account must close, it simply means that the CTF wrapper around the investments must be removed. So, if there have been other contributions to the account it will be for the CTF provider to agree with the registered contact what is to happen to these. The terms and conditions of the account may require the account to close and the contributions to be sent to the child or they may allow the sums to be moved to a non-CTF account.

Name, address and date of birth changes

Name, address and date of birth changes may be made to CTFs where the registered contact supplies satisfactory evidence. There is no need for date of birth changes to be referred to HMRC, but providers should retain a copy of the evidence presented, for example a copy of the child’s birth certificate.

CTF Statements

Date of issue of statements

A provider must issue a statement for each CTF annually unless:

• the CTF has received no third party contributions since the last statement date, or
• the value of the CTF account is less than £300

Where either of these exceptions applies, statements are still required in the year following the child’s 10th, 15th and 17th birthdays. The registered contact can request an annual statement for the account if one has not been issued by their CTF provider.

The annual statement must be issued not more than 12 months after the previous statement (unless one of the two exceptions applies). Providers can issue all of their statements in one annual batch.

A provider must also issue a statement when a CTF is transferred to another provider. The statement must be issued within 30 days of the date of transfer

To whom issued

The statement must be issued to the child (care of the registered contact) or to the child when the child is the registered contact or where there is no registered contact (or The Share Foundation if they are appointed). Statements must be issued to an account holder of a matured CTF account.

For Revenue allocated accounts where no person has applied to be the registered contact, and therefore where no child’s address is held, the statement can be sent to the child care of the correspondent, whose name and address was supplied to the provider when the Revenue allocated account was opened.

Some Revenue allocated accounts were opened with the contact being Mrs CTFO at the Child Trust Fund Office, Waterview Park, Washington, NE38 8QG. Following the closure of the CTF Office, providers should mark those records to prevent future correspondence being issued (until a valid application to take on the registered contact role is received).

Statement contents

The statements issued before a child becomes 18 must include:

• the statement date
• the child’s name and unique reference number
• the type of account (stakeholder or non-stakeholder)
• the name of the registered contact (if any)
• where the provider held the CTF at the child’s previous birthday, and a previous statement has been prepared, the total market value of the investments in the CTF at the previous statement date
• if a government contribution has been made, the amount of any government contributions received by the provider between the previous statement date, or opening of the CTF (whichever is later) and this statement date
• the aggregate amount of any subscriptions made to the CTF between the previous statement date, or opening of the CTF (whichever is later) and this statement date
• the amount of any deductions (including management charges) made from the CTF between the previous statement date, or opening of the CTF (whichever is later) and this statement date (but see paragraph below)
• the total market value of the investments in the CTF at the statement date
• the number or amount, description and market value of each of the investments in the CTF at the statement date
• the basis used in calculating the market value of each investment, and, if the basis of valuation has changed since the previous statement, an explanation of the change
• where any of the investments are held in or denominated in a currency other than sterling, the exchange rate used in the valuation

Statements issued no later than 12 months after the date CTF funds entered a matured CTF account after the child becomes 18 and annually from then on must include the:

• relevant statement date
• account holder’s full name
• account holder’s unique CTF reference number
• total market value of the investments at the date the statement was produced
• amount of any government contributions received by the provider between the previous statement date, or opening of the CTF (whichever is later) and this statement date
• aggregate amount of any subscriptions made to the CTF between the previous statement date, or opening of the CTF (whichever is later) and this statement date
• amount of any deductions (including management charges) made from the CTF between the previous statement date, or opening of the CTF (whichever is later)

Where the statement is issued on the CTF’s transfer to another provider, the number or amount, description and market value of the investments in the CTF at the statement date must be of those investments that will be transferred. Any costs associated with sale of investments prior to transfer (including any costs of reregistration) must be included in the statement and deducted prior to detailing the investments in the CTF at the statement date.

Providers should bear in mind that the recipients of the statement may be adults with little experience of savings and investment, or, as the children grow, teenagers, and the statement should be designed to help them understand the key points.

The management charges or other incidental expenses levied on the CTF can either be shown in the actual amount, or as an annual percentage rate at which the deductions were made. If the rate has changed during the year each rate must be shown separately together with the period for which the rate applied.

Transferring a CTF

Internal transfer

A registered contact can transfer a CTF internally by changing the type of CTF, from stakeholder to non-stakeholder, or vice versa. In this case the CTF remains with the same provider, although there may be changes to the investments held in the CTF. An internal transfer can only take place where the provider offers both the non-stakeholder and the stakeholder CTF.

The entire CTF must be transferred. A child cannot have more than one CTF at any time, nor can a CTF be a mix of stakeholder and non-stakeholder.

The transfer must be free of charge — the only deductions allowed from the CTF for transfer are for incidental charges arising from the movement of investments, such as Stamp Duty and dealing charges. No charge for transfer of any kind (including incidental charges) can be made outside the CTF.

To carry out an internal transfer the registered contact must contact the current provider. There is no requirement under the CTF rules for the registered contact to provide transfer instructions in writing — this is a matter for the terms and conditions applying to the CTF.

Subject to the CTF terms and conditions of the providers, a CTF may be transferred in a variety of ways:

• by transferring investments
• in cash
• in a combination of investments and cash

If the internal transfer is from a non-stakeholder to a stakeholder CTF, and the investments transferred across do not qualify for the stakeholder, they can be transferred and sold inside the stakeholder CTF. If the non-qualifying investments are not sold within 30 days of the transfer the CTF must be repaired (see section on ‘Repairing CTFs’)

The transfer should be carried out as soon as requested by the registered contact, subject to:

• the reasonable business period required to carry out the transfer (not exceeding 30 days)
• expiry of any cancellation period

External transfer

A registered contact can transfer a CTF externally to another provider. The entire CTF must be transferred. A child cannot have more than one CTF at any time, nor can a CTF be a mix of stakeholder and non-stakeholder. The transfer must be free of charge — the only deductions allowed from the CTF for transfer are for incidental charges arising from the movement of investments, such as Stamp Duty and dealing charges. No charge for transfer of any kind (including incidental charges) can be made outside the CTF.

To effect the transfer the registered contact must complete a transfer application form with the new provider. The transfer application form is slightly different from that used to open the CTF. An example of a written external transfer application can be found in section ‘Example of written external transfer application’, and a telephone external transfer application can be found in section ‘External transfer phone applications’.

Providers are not obliged to accept transfers, but see section ‘Refusal to accept an internal or external transfer’. If the request is by telephone a signature is not needed unless the old manager’s terms and conditions say they will not transfer the CTF unless they have received a written request with a signature.

After completion of the form, and after expiry of any cancellation period with the new provider, the new provider must contact the old provider and request transfer of the CTF. The new provider must not request transfer until after expiration of any cancellation period applying to the application for transfer.

The new provider must give the name of the person who requested the transfer, as well as details of the account, to the old provider. The old provider can then identify the account and check that this person is the registered contact.

Subject to the CTF provider’s terms and conditions, a CTF may be transferred in a variety of ways:

• investments may be re-registered in the name of the new provider or their nominee
• it can be transferred in cash
• it can be transferred in a combination of investments and cash

The old provider must transfer investments and/or cash direct to the new provider, and must keep a record of the transfer notice for three years after the date of transfer. The original application form should not be sent to the new provider, but must remain with the old provider. There are no circumstances in which the original application form should be transferred to the new provider.

Where the investment transferred to another provider is an insurance policy and the new provider is an insurer, title to the policy and any policy documents should be transferred to the registered contact as part of the transfer arrangements.

Where the old provider is the one with whom the current registered contact application was made, they must also keep the original or a certified copy of the application, or, in the case of applications not in writing, the declaration made by the registered contact, for three years after the date the application was made.

The transfer should be carried out by the old provider as soon as requested by the new provider, subject to the reasonable business period required to carry out the transfer (not exceeding 30 calendar days). The transfer should not be delayed due to waiting for re-registration of investments, or receipt of outstanding government contributions or dividends or other income from investments. Any sums received after transfer should be forwarded to the new provider together with details of the CTF in respect of which the sums have been received.

If a provider receives a transfer request for a Revenue allocated account that does not have a registered contact, they can proceed with the transfer if the new provider’s registered contact details match the contact name given by HMRC. If the name does not match, further proof must be requested.

External transfer forms

Providers should produce their own external transfer forms. The form should be sent to the new provider as soon as the transfer takes place. A model for an external transfer form is in section ‘CTF external transfer form’. Note that all external transfer forms must contain the same details as the model, including the declaration. The form should be completed by the old provider as follows:

Full name of child

Providers should enter the first name and initials, and the surname of the child, as held on the provider’ records

Date of birth

This should be reported in the format DDMMYYYY. For example: The date of birth of a child born on 3 June 2008 should be reported as 03062008.

Unique reference number

This is the number on the voucher used to open the CTF.

Full name of registered contact

Providers should enter the forename(s) or the first name and initial, and the surname of the registered contact. If the CTF does not have a registered contact this should be noted.

Full address of registered contact

Providers should enter the full address of the registered contact. If the registered contact’s current address is not known providers should report the last address held.

CTF account number

Providers should enter the account number they have given to the CTF.

Date of transfer

The date of transfer is the date the transfer takes place. This should be reported in the format DDMMYYYY. This is also the statement date (see ‘Date of issues of statements’ section).

Total subscriptions in subscription year to date of transfer

This box should be completed with the total subscriptions made to the CTF since the day before the child’s last birthday (or the date of opening of the CTF if later) to the date of transfer. Do not include any government contributions in this total.

Total subscriptions in the previous year

This box should be completed with the total subscriptions made to the CTF in the previous subscription year, where that year ended after 5 April in the current year and before the date of transfer.

For example, where a CTF is transferred on 28 June 2021 and the previous subscription year ended on 4 May, the new provider will need:

• details of the current year subscriptions to monitor the £9,000 subscription limit
• details of the previous year subscriptions for inclusion on their information return for the tax year 2020-21

Alternatively, if it is simpler, the old provider could complete this box in all transfer cases and leave the new provider to identify where the subscription year ended after 5 April in the current year and before the date of transfer.

Total amount of government contributions outstanding

• this box is no longer required and should be removed from forms
• for each box, where no amount is being transferred, providers should leave a blank

Investments

Enter details of the investments that are, or will be transferred. If cash forms part of the CTF, the cash should be shown separately from other investments.

Cancellation of transfer

Internal and external transfers cannot be carried out until after the expiry of any cancellation period, so where a registered contact cancels the transfer the CTF remains as it was before the transfer request.

A cancellation made after the expiry of any cancellation period has no effect, and cannot prevent the transfer of the CTF.

Refusal to accept an internal or external transfer

Providers cannot refuse to accept a transfer based on the grounds of:

• the value of the voucher used to open the CTF
• the value of any other government contributions to the CTF, or
• whether the CTF was opened as a Revenue allocated account

Providers can refuse a transfer if for example, the CTF transferred is a non-stakeholder CTF, and they do not offer this type of CTF.

Providers who offer their own stakeholder CTF cannot refuse to accept a valid internal or external transfer into that CTF, and cannot impose conditions on the transfer that prevents the transfer, for example by stipulating a minimum balance required for transfer. If a CTF provider receives such a large number of requests for transfer that they are concerned that they may not be able to fulfil their duties as a CTF provider they should contact HMRC by emailing savings.audit@hmrc.gov.uk for advice.

Credit unions cannot accept an external transfer of a CTF where the child does not fulfil the membership requirement.

Unsuitable investments for a stakeholder CTF

Providers accepting an external transfer of investments in specie into a stakeholder CTF should make sure that the investments received are suitable for the stakeholder. If they are not suitable the procedure explained in the paragraph covering ‘non-qualified investments’ should be followed.

Example of written external transfer application

You can download an example of a written external transfer application (this document will be downloaded to your device and is an 8.64kb ODT file).

External transfer phone applications

CTF providers can accept an application by a registered contact to transfer a CTF to them over the telephone. There is a downloadable document with a set of questions that CTF providers should ask the registered contact. (this document will be downloaded to your device and is an 7.01kb ODT file).

CTF external transfer form

You can download an example of a CTF external transfer form (this document will downloaded to your device and is an 8.92kb ODT file).

Bulk transfers of CTF and matured CTF accounts

A bulk transfer of CTF accounts and matured CTF accounts takes place when:

• two providers agree to transfer two or more accounts between them without the agreement of the account holders; for example where a CTF provider decides to cease to act as an account provider, or
• the transfer takes place under an insurance business transfer scheme or a banking business transfer scheme under Part 7 of the Financial Services & Markets Act 2000 (FSMA)

Before making a bulk transfer, the provider must notify HMRC and the investors whose accounts are being transferred. The notice must:

• specify the first day on which accounts will be transferred under the bulk transfer
• be given at least 30 days before this date
• provide the name and address of the provider who will receive the accounts

In addition, the notice to investors must:

• identify the account being transferred
• advise that the investor can arrange a transfer to a CTF provider of their choice if they supply instructions by a certain date
• specify what the date is for receiving those instructions

When making a bulk transfer, the old provider does not need to complete separate transfer forms for each CTF and matured CTF account being transferred. Instead they can give the new provider a schedule that contains the information that would normally be entered on a transfer form.

Where providers adopt this approach they must also send a covering notice to the new CTF provider. This notice should identify the CTFs being transferred by referring to the accompanying schedule.

Group transfer of account

A ‘group transfer of accounts’ is a bulk transfer that takes place between members of a 75% group of companies — that is, where one of the companies is a 75% subsidiary of the other or both are 75% subsidiaries of a third company.

Following a group transfer or a bulk transfer of accounts under part 7 of FSMA, the new provider can accept subscriptions to the account if the most recent application held by the old provider is available to the new provider.

The application is available to the new provider if it (or a copy) has been passed to the new provider or if the new provider could require it to be made available to him.

Transfer of a CTF to a Junior ISA (JISA)

Subject to the CTF and JISA terms and conditions, a CTF may be transferred to either a cash or a stocks and shares JISA (see JISA guidance for ISA managers).

Transfers may be made between CTF providers and JISA managers, or investments in a CTF may be transferred from a CTF to a JISA (cash or stocks and shares) with the same institution. A CTF must be transferred in full and closed once the investments or cash have been passed to the JISA manager. Part transfers of CTF investments cannot be made.

Where a CTF has a nil balance, the transfer process must still be followed. This will allow the CTF to be formally closed.

Withdrawals from a CTF

When investments can be withdrawn from a CTF

Investments (including cash) in a CTF may only be withdrawn in the following circumstances:

• where a terminal illness claim made on behalf of the child has been agreed
• on closure of the CTF

Closure of the CTF

A CTF can only be closed:

• on the death of the child
• on the child reaching their 18th birthday
• on direct instruction from HMRC (where the CTF is void)

A CTF cannot be closed merely because the child has become non-resident in the UK. The CTF remains open and further subscriptions can be made to the CTF.

Where the registered contact is The Share Foundation the provider must inform them when the CTF is closed following the death of the child, or because the CTF has been voided.

Death of the child

Proof of the death of the child must be obtained before the CTF can be closed. The provider does not need to report the closure to HMRC. In most cases sight of the original death certificate or the coroner’s interim document will be sufficient. Providers must note the date of death as they will be required to include this on the return made to HMRC.

Where a child dies, the interest, dividends or gains in respect of investments in their CTF which arise between the date of death and the date of closure are not exempt from tax. But there is no loss of exemption on interest, dividends or gains which arise before the date of death, including any gain treated as arising as a result of the death of the child under the rules for investments in policies of life insurance.

For the purposes of determining whether a claim can be made in relation to tax deducted from interest, the important date is the payment date. Where the payment date is on or before the date of death any tax deducted can be reclaimed.

This may lead to some practical problems if providers do not receive notification of death promptly — for example where the provider has made a claim to, and has received repayment of tax from HMRC on an amount which is no longer exempt from tax, they must repay HMRC, normally by deducting the amount from the next tax claim (see section ‘Annual claim form CTF14’).

Rights conferred by a CTF insurance policy vest in the personal representatives on the death of the child. The CTF insurance policy must pay out on the death of child and personal representatives must not delay in claiming.

Subject to the CTF terms and conditions, providers should advise the personal representatives that they have the choice of having the CTF investments transferred to them (or a beneficiary) or of the provider selling the CTF investments and paying the proceeds to them.

Providers must pay any tax deducted to HMRC, normally by deduction from the next claim made, under the heading: Adjustments to previous claims.

Providers should provide personal representatives with a statement showing:

• the market value of the investments held in the CTF at the date of death, or in the case of a cash CTF, the value of the CTF at the date of death and the gross interest payable to date of death
• the original cost price and date of acquisition of any investments purchased after the date of death
• the date of disposal and the amount of the net sale proceeds received for each disposal made after the date of death, together with:
  • a tax certificate R189K showing any income with a payment date following the date of death if requested, and
  • a tax certificate (R185) or section 975 certificate showing the interest and tax deducted if requested

Child’s 18th birthday

The legal ownership of the CTF account should be transferred to the account holder on their 18th birthday. The account ceases to be a CTF on that day.

On maturity only the holder of a CTF account can instruct their account provider to:

• withdraw the whole of their account
• withdraw part of their account and reinvest the remainder in an ISA
• transfer the whole of the cash amount held to one or more accounts
• transfer all the proceeds from realised investments to one or more other accounts
• transfer ‘in-specie’ all the investments held to another account including an ISA with the CTF provider

What to do when a young person who lacks mental capacity turns 18

The process is different when you manage a CTF account for an individual who turns 18 and lacks mental capacity.

If the young person is unable to make decisions for themselves, you will need an instruction from an authorised person acting on their behalf in the same way you do for any other account that you manage.

Depending on where the young person lives, the authorisation that is needed is set out in the following legislation:

• Mental Capacity Act 2005 — England and Wales
• Adults with Incapacity (Scotland) Act 2007 — Scotland
• Mental Capacity Act (NI) 2016 — Northern Ireland

Information on how to apply for authorisation is available from:

• the Court of Protection in England and Wales
• the Office of the Public Guardian in Scotland
• the Office of Care and Protection in Northern Ireland

No instructions received from the account holder

An account provider who has no instructions from the child must transfer the maturing CTF to a protected account which can be a matured CTF account or an ISA managed by them.

Where no instructions have been given by the holder of a child trust fund, all the investments held immediately before the child’s 18th birthday must be transferred to a protected account with the current CTF provider.

Protected accounts containing funds from a matured CTF account continue to be treated as non-Basic Life Assurance and General Annuity Business (BLAGAB) products within the meaning of sections 57 and 59 of the Finance Act 2012.

A matured CTF account of the person who held a CTF must be subject to the same general terms and conditions which applied immediately before the account holder’s 18th birthday, as if the investments had remained in the CTF. Providers can change the rate of interest paid on a continuing account but must make sure that investors are treated fairly in accordance with the FCA’s principles.

An account provider who is authorised to offer ISAs can transfer the whole of the investments held in a maturing CTF account to an ISA of the same type.

Investments that are not held in cash can be transferred ‘in-specie’ to a protected account that is a continuing account or a stocks and shares ISA with same account provider.

A matured account cannot be transferred to another provider or ISA manager without instructions from the account holder. The only exception is when a bulk transfer of CTF and protected accounts takes place between 2 providers when a CTF provider ceases to act as an account provider — see the section on ‘Transferring a CTF’.

No subscription can be made to a matured account, but income (including interest and gains) on investments can be credited to a matured CTF account.

An account holder cannot give their CTF provider instructions to only partially withdraw cash or investments from their matured CTF account.

An account holder can instruct their CTF provider to transfer the whole of their withdrawn investments into 2 or more accounts nominated by the account holder.

Partial withdrawals cannot be made from a matured account even when a provider was informed that an account holder was terminally ill before their 18th birthday.

Account providers must produce an annual statement no later than 12 months after the date that funds entered the matured account and annually thereafter.

When all the investments have been transferred out of a matured account following instructions received from the account holder the account must be closed.

Void CTFs

When HMRC instructs a CTF provider that a CTF must be voided all government contributions and income arising on those contributions or investment purchased with the contributions must be returned to HMRC (see the section on ‘Repair — non-qualifying investments’).

However, if the account has been transferred to a new provider it is very unlikely that the new provider will have details of the previous investment history so they will not know what growth (or loss) is associated with a particular government payment. If this is the case, the provider should return the government contribution only. If the registered contact claims that, because of losses, the amount being returned is excessive, they should contact HMRC.

Tax on interest paid gross on income arising on the invalid subscriptions must be recovered by the provider, normally by deduction from the next claim under the heading: Adjustments to previous claims.

All life insurance policies held in the CTF must terminate. There is more information on void policies and the termination mechanism in the section ‘Void life insurance policies and chargeable events’. The balance of investments and income on those investments are the child’s.

Providers should tell the registered contact:

• the date and amount of each income payment received in respect of the investments in the CTF, and the amount of tax deducted from those income payments (if the investments have since been sold, the date and amount of each income payment received in respect of the replacement investments and the amount of tax deducted from those income payments)
• the date and amount of any interest paid or credited on cash held in the CTF and the amount of tax deducted from that interest
• the original cost price, any incidental costs of acquisition and date of acquisition of investments in the CTF and, if they have since been sold, the original cost price, any incidental costs of acquisition and date of acquisition of the replacement investments
• the date of disposal, the amount of the sale proceeds and any incidental costs of disposal of investments in the CTF and, if they have since been sold, the date of disposal, amount of the sale proceeds and any incidental costs of disposal of the replacement investments
• for insurance component products, the provider will need to ascertain the amounts of any gains treated as arising in order to calculate how much tax to deduct, and must inform them of:
  • the amount of premiums paid and the date on which they were paid
  • the amount of part withdrawals and the date on which each was made and also, for each part withdrawal, the date of the last day of the year as defined in section 546(4) Income and Corporation Taxes Act 1988 in which the part withdrawal was made:
  • the amount of tax deducted in respect of each part withdrawal
  • the benefits payable on death, maturity or surrender and the date of the event
  • the amount of tax deducted in respect of the benefits payable on death, maturity or surrender
  • the amount of benefits actually paid to the child, after all deductions of tax

Providers should advise the registered contact to report details to the child’s tax office of the interest, dividends, chargeable gains and allowable losses and chargeable gains and corresponding deficiencies arising in respect of the void subscriptions for the tax year in which they arose.

Providers should supply tax certificates R189K, R185 or section 975 certificates (or their own tax vouchers) on request to the registered contact showing, respectively, the dividends and the gross interest credited and tax deducted.

Voiding the CTF does not mean that the account must close, it simply means that the CTF wrapper around the investments must be removed. So if there have been other contributions to the account it will be for the CTF provider to agree with the registered contact what is to happen to these. The terms and conditions of the account may require the account to close and the contributions to be sent to the child or they may allow the sums to be moved to a non-CTF account.

Void life insurance policies and chargeable events

When HMRC instructs a CTF provider that a CTF must be voided, any policies held within the CTF must terminate, unless they have already been surrendered, matured or paid out on death before the provider discovered that the CTF must be voided.

The policy will terminate in accordance with the contractual terms when it comes to the notice of the account provider that the CTF must be voided. It does not terminate when the CTF first failed the conditions (which may have been at inception or some time subsequently) or when notice of the failure reaches the insurer (unless the insurer is also the CTF provider).

Where the provider is not the insurer, it should notify the insurer of the failure within 30 days of it coming to the provider’s notice that the CTF must be voided. Notice may be given in writing or in some other way.

A void policy remains part of the CTF business of the insurer throughout its existence, notwithstanding the fact that the conditions to be a qualifying investment in a valid CTF will have been breached at some point during the policy’s life.

The special rules that tax gains on life insurance policies, often known as the chargeable event rules, are used to recover tax relief that is not due on a policy which is held within a CTF which is voided. The exemption from tax on chargeable event gains held within a CTF does not apply. Tax liability may arise on the forced termination of the void policy and on any previous chargeable events which took place before the provider learns that the CTF must be voided.

If a policy terminates as described above then this ‘termination event’ is deemed to be a surrender chargeable event occurring at the date that it came to the notice of the CTF provider that the CTF must be voided.

Other chargeable events which may be relevant for CTFs are the surrender, maturity or ending of the policy on death if any of these events occur before the provider discovers the CTF must be voided, and ‘excesses’ as a result of part surrenders of rights conferred by the policy.

Providers must normally account for tax at the basic rate in force for the year of assessment in which the chargeable event occurred. Where appropriate, the CTF provider should account for tax by deducting the amount due from their next claim to HMRC (see the section on ‘Annual and interim tax claims’). The amount of tax deducted by the provider must be reported to the child.

But HMRC have the power to assess the child, via the registered contact, to recover tax if the funds remaining in the CTF are insufficient or the CTF has been closed before the provider is aware that a recovery may be necessary.

The following details of chargeable event gains must be reported to the policyholder within 3 months of the event coming to the notice of the insurer:

• the nature of the chargeable event
• the date of the chargeable event
• the amount of the gain
• the number of years for top-slicing relief

Where the insurer is also the provider, this information should already be included in the details to be provided by the provider (see ‘Void CTFs section’). If so, there is no need to duplicate this information in a separate chargeable event certificate.

Where the amount of the gain exceeds half the basic rate limit for the year of assessment in which the gain arises then the insurer must also report the information listed in the section ‘Void insurance policies and chargeable events’ to HMRC at the Centre for Revenue Intelligence (previously called TIDO) within 3 months of the insurer receiving notice that the CTF must be voided.

Terminal illness

Parents can make a terminal illness early access claim by completing the online form on GOV.UK. If the claim is agreed, HMRC will issue a letter to the parent letting them know that the funds in the CTF can be withdrawn. The CTF provider should ask for sight of the letter and retain it (or a copy of it). The letter will contain a contact number, which the provider can use to contact HMRC.

The only person who can withdraw money from the CTF on behalf of the child is the registered contact. In most cases the withdrawal will be in cash but, if the provider allows, the investments in the account can be transferred to the registered contact directly. This would be most useful where sale of the investments would attract an early redemption penalty. Any cheque drawn on the CTF must be made payable to the registered contact.

After withdrawal (which can take place on one or several occasions) the CTF must retain a sufficient balance to remain open. If the provider’s systems allow this, the CTF balance can be zero. Further subscriptions to the CTF (within the annual subscription limit) must be accepted and, barring death of the child, the CTF will continue until the child reaches 18 years old.

Any funds withdrawn from the CTF will count towards the subscription limit if they are resubscribed.

Request to reverse CTF subscriptions

When a CTF provider receives a request to reverse a CTF subscription that was paid into a CTF in error by a parent of a child or any other person, they should inform the person making the request that their subscription is a gift to a child and it cannot be repaid.

Cash may be deposited into the CTF of an unconnected child in error. This could be the result of an error made by the CTF provider or by the customer moving money between accounts using their online banking account or a mobile phone application (app). If an error by a CTF provider is identified for example a keying error, the CTF provider can immediately reverse the transaction and correct both accounts. The CTF provider should notify both accounts holders to explain what has happened.

CTF providers should only contact HMRC to reverse a subscription into a CTF following a mistake by the CTF provider. HMRC will need full details of the circumstances that led to the error. HMRC may also need to consider the subscription history for the account.

The lock-in nature of the CTF means that subscriptions made by parents or any other person into a CTF cannot be repaid or reversed under any circumstances because the subscription is a gift to the child.

Annual and interim tax claims

What providers can claim

Providers (other than providers who are insurer providers) can claim UK income tax deducted from income in respect of CTF investments by making claims to HMRC.

Providers who are insurer providers (and insurers that provide CTF policies to other CTF providers) can claim UK tax deducted and foreign withholding tax from income referable to CTF business from their tax office. (Guidance for insurers will be included on the claim form R19 and in the notes sent out with a CT61 return form).

How to claim

All interim claims must be made on form CTF10 and annual claims on form CTF14 and signed by an authorised officer of the provider. Employees of an administration company used by the provider must not sign a claim on behalf of the provider.

Where HMRC is satisfied with the claim they will pay the sum claimed, through the BACS system, direct to the provider’s bank account.

Claims received by HMRC on or before the last working day of a calendar month will be paid on the 19th of the following month. Where the 19th falls on a weekend or public holiday, HMRC will make payment on the next working day.

Information to be supplied before claims are made

Before providers make their first claim they should provide HMRC with the details of signatories to claims which must include:

• the full name and status of up to five individuals appointed by a resolution of the provider’s board or equivalent managing body to sign claims on behalf of the provider (only one signature is required on each claim)
• a copy of the resolution of the board or equivalent managing body appointing each signatory
• an original specimen signature of each signatory

Where a signatory is to be removed from the current list of authorised signatories, an authorised signatory of the manager should inform HMRC. Where a signatory is to be added to the current list of authorised signatories, or is replacing an current authorised signatory who is not described in terms of the post held, an authorised signatory of the manager should send:

• a copy of the resolution of the board or equivalent managing body appointing the new signatory
• a sample of the individual(s) signature

Both are required, and photocopies will not be accepted.

The signatory being replaced could be described in terms of the post held, such as: the finance director for the time being, in the list of authorised signatories. When the post holder changes, an authorised signatory of the manager should provide details (name and specimen signature) of the new post holder, but this need not be supported by a resolution of the manager’s board or equivalent managing body.

Bank account details:

• the full name and address of the branch of the bank to which the payments are to be made
• the sort code of the branch
• the account number
• any special form of identification given to the account (such as deposit, special deposit, number 2, and so on)
• an account name for use by BACS (the name must not exceed 18 characters, including spaces)

Where any of the information provided subsequently changes, providers should inform HMRC in writing well before the next claim is made. Failure to do so could lead to a delay in making a payment. Claims will not be paid if a person whose details have not been provided to HMRC signs the claim form.

Where the nominated bank account is being changed, an authorised signatory of the manager should provide details of the new account to which payments are supported by either a paying in slip, or a bank statement.

Basis of claim

Providers may make interim claims, for one or more tax months. Providers who have made one or more interim claims for a tax year must also make an annual claim. Providers who have not made an interim claim for a tax year do not need to make an annual claim if they have no claims or payments to make for that year.

Interim claim form CTF10

Providers should make interim claims on form CTF10. The form on GOV.UK must be used.

For guidance on how to complete form CTF10 see the section ‘Completion of form CTF10’.

Interim claims are made in respect of income with a payment date falling in one or more tax months. They may cover a maximum of six tax months provided all those months fall in the same tax year. Tax month begins on the sixth of one calendar month and ends on the fifth of the following calendar month.

Providers must hold tax vouchers for all amounts included in the claim.

Interim claim forms include provision for providers to pay back amounts claimed and received from HMRC that are found not to be due.

The CTF10 interim claim form includes provision for providers to account for basic rate tax on chargeable events in a CTF insurance product.

Where providers are required to make an annual claim, HMRC will not pay CTF10 interim claim for the tax month ending 5 October or later unless they have received a fully completed annual claim on form CTF14 for the previous tax year to 5 April.

This is an automated process. As a result, once a ‘stop’ has been placed on repayment claims it can be removed only when all outstanding returns have been received by HMRC.

HMRC will not pay an interim or annual claim after 4 June unless they have received a return of information (see the section on Returns of information) for the previous tax year to 5 April.

Where HMRC is not satisfied with a claim they will pay any basic amount which they estimate is due. There is no right of appeal against a decision on an interim claim.

Where, as a result of making an interim claim there is a net amount due, HMRC will request repayment of the amount due.

Where a provider receives a tax voucher late, they should still make a claim for the period in which the payment date fell. However, a claim for tax in respect of such a payment may be included in the provider’s next interim claim provided:

• the period of the claim, that is, from the 6th of the month in which the payment was made to the 5th of the month of the next claim, does not exceed six months
• the date of the payment does not fall in the previous tax year
• the provider keeps a record of such cases for reconciliation purposes which should be made available on request to HMRC auditors

Where a provider receives a tax voucher late and the claim cannot be included in the provider’s next interim claim the provider may claim the tax by either:

• making a supplementary interim claim for the tax month in question
• including the payment in the annual claim for the tax year in which the payment fell, or making a supplementary annual claim for the tax year in which the payment date fell

Completion of form CTF10

The following information needs to be provided on the CTF10:

Provider reference

Providers should enter their CTF reference number allocated to them by HMRC. This will always be 4 numeric characters.

Name of CTF provider

Providers should enter the legal name under which they have received provider approval. The provider’s trading name(s) must not be entered.

Period of claim

This will normally be a tax month beginning on the 6th of one calendar month and ending on the 5th of the following calendar month. However the period of claim can be longer (see section Interim claim form CTF10).

Part 1 — amount claimed

In Box A, providers should enter the amount of tax deducted from interest arising on investments held in CTF accounts.

Part 2 — amounts payable

In Box B, providers should enter the total of any amounts previously claimed and subsequently found not to be due. For example, tax over claimed in error, and claims in respect of payments made after a child’s death.

In Box C, providers should enter details of tax deducted at basic rate from chargeable events. Full details are set out in the section ‘Void life insurance policies and chargeable events’.

Part 3 — reconciliation

Providers should enter the final amount claimed in Box E (this is the tax claimed in Box A less any tax adjustments in Box D). Where the net result is that the provider still owes monies to HMRC, a cheque made payable to HMRC should be attached to the claim.

Certificate — authorised signatory

The form CTF10 must be signed by an authorised signatory. This must be one of the persons already notified to HMRC (see section ‘Details of signatories to claims’).

Annual claim form CTF14

Providers should make annual claims on form CTF14. The form CTF14 should be downloaded from the GOV.UK website. HMRC does not issue a reminder.

For guidance on the completion of form CTF14 see the section ‘Completion of form CTF14’.

Where appropriate, providers must return fully completed forms to HMRC by the following 5 October. Providers must make an annual claim where they have made one or more interim claims for a tax year or have not made an interim claim but have claims or payments to make for that year.

The provider’s external auditor must certify the annual claim. If the provider’s accounting records have been audited at any time during that year by external auditors for a body such as the FCA then a statement from those auditors to the effect that they were satisfied with the adequacy of the accounting records will satisfy this requirement.

The annual claim relates to income with a payment date falling in the previous tax year ending on 5 April. It is therefore a consolidated claim covering any interim claims made for that tax year. Providers must hold tax vouchers for all amounts included in the claim.

Annual claim forms include provision for providers to pay back amounts claimed and received from HMRC that are found not to be due.

The CTF14 claims form includes provision for providers to account for basic rate tax on chargeable events in a CTF insurance component.

Where an annual claim exceeds the amounts paid on interim claims for that tax year and HMRC is satisfied with the claim, they will pay the balance on the 19th of the month following the month in which the annual claim form is received.

If, on the other hand, the amounts already paid on interim claims exceed the amount shown on an annual claim, the provider should send a cheque for the amount due, with the form CTF14 to HMRC. Cheques should be made payable to HMRC and crossed A/C payee.

If the annual claim on form CTF14 is due and has not been received by 5 October following its issue:

• no further interim claims will be paid after 5 October until the CTF14 is fully completed and received
• HMRC will review the payments made for the tax year for which the form CTF14 is outstanding and will issue a notice showing the payments made and any lower amount which they consider ought to have been made
• if the form CTF14 is not received within 14 days after the issue of that notice, the amount shown in the notice will become immediately recoverable by debt management and banking

HMRC may withdraw approval from the provider where an annual claim CTF14 is due and not made.

Providers do not have to make an annual claim where they have not made any interim claims for that year and have no claims or payments to make for that year.

Providers may make supplementary returns or annual claims at any time within four years after the end of a tax year if it is discovered that the original annual claim contained an error or mistake.

Completion of form CTF14

The following information needs to be provided on the CTF14:

Provider reference

Providers should enter their CTF reference number allocated to them by HMRC. This will always be 4 numeric characters.

Name of CTF provider

Providers should enter the legal name under which they have received provider approval. The provider’s trading name(s) must not be entered.

Period of claim

This will be the tax year beginning on 6 April in one year and ending on 5 April of the following year. However, the period of claim may be shorter where the provider is only approved part way through a tax year. In that event the period of the first annual claim will be from the date of approval to the following 5 April.

Part 1 — amount claimed

Providers should enter the amount of tax deducted from interest arising on investments held in CTF accounts In box A.

Part 2 — amounts payable

In box B, providers should enter the total of any amounts previously claimed and subsequently found not to be due. For example, tax over claimed in error, and claims in respect of payments made after a child’s death.

In box C, providers should enter details of tax deducted at basic rate from chargeable events. Full details are set out in the section ‘Void life insurance policies and chargeable events’.

Part 3 — reconciliation

Providers should enter the final amount claimed for the tax year in box E (this is the tax claimed in box A less any tax adjustments in box D). Where the net result is that the provider owes monies to HMRC, the net amount owing should be entered in box F.

Part 4 — net amount from interim claims made

Providers should enter the amount of monies previously claimed on all interim claims made for the tax year. If no interim claims have been previously submitted, providers should enter NIL in box G. Where the provider has already paid previously over claimed amounts to HMRC in interim claim(s) made during the tax year, the total amount paid should be entered in box H.

Part 5 — total amount for year

Providers should enter in box J the total amount of monies which they are claiming for the tax year. Where monies are due to HMRC, the amount should be entered at box K.

Certificate — authorised signatory

The form CTF14 must be signed by an authorised signatory. This must be one of the persons already notified to HMRC (see section ‘Details of signatories to claims’).

Assessments and recovery of tax and charges

Where amounts due cannot be recovered from the next claim, HMRC will normally issue an informal notice advising the provider of the amount payable and telling the provider how to pay the amount due.

Where amounts due cannot be recovered informally, HMRC will make assessments on the provider.

Change in rate of tax credit and basic rate of tax

If there is a change in the rate of tax, the amount shown on the tax voucher may be incorrect. A change in the rate of tax during a tax year may affect claims already made for that year. In these circumstances HMRC will advise all providers of what action to take.

Repayment of foreign tax

Providers may only claim United Kingdom income tax from HMRC. They must take their own arrangements to make claims from foreign fiscal agencies under Double Taxation Agreements.

If the CTF account holder is resident in the United Kingdom the relevant claim forms can be obtained from the foreign tax authority. If the CTF account holder is not resident in the UK they should refer to the guidance on GOV.UK.

Providers should bear in mind that if it is a requirement of the double taxation agreement that the income is subject to tax in the UK, no repayment may be claimed.

Returns of information

The annual return

Providers are required to make a return of information to HMRC within 60 days of 5 April of each year (ie by 4 June), or within 60 days of the date of ceasing to qualify, or act, as a provider.

The information required is for the period from the date the provider began to manage CTFs, or the last reporting date, whichever is the later.

Providers must report details for all CTFs they managed during the return period, including CTFs transferred in, and CTFs where the account holder has died.

Providers must not report details of CTFs transferred out, or that have been voided in the return period.

Providers must report details of CTF accounts that matured on the account holder’s 18th birthday in the period up to 5 April each year (starting with tax year ending on 5 April 2021).

A return of information on a matured CTF account does not include:

• whether the CTF account was a stakeholder account or not
• whether there was a registered contact or not for the account before maturity
• the total amount of cash subscribed to the account

Providers who are also ISA managers must include ISA accounts they have opened with funds transferred from a matured CTF account without instructions from the CTF account holder on their annual ISA annual return of information.

The return of ISA information must include the unique reference number for the child trust fund or the national insurance number (if available).

The return of ISA information must include an indicator that the ISA account represents a matured CTF account that was opened without instructions from the CTF account holder. There are two ISA types:

• ISA type S — a stocks and shares ISA with investments from a matured CTF account
• ISA type T — a cash ISA with cash from a matured CTF account

The valuation of the types of investments held in the ISA on 5 April each year should be included on the annual ISA statistical return made to HMRC (starting with tax year ending on 5 April 2021).

How to make returns of information

Technical assistance with submitting CTF annual returns is available from HMRC see ‘Contacting HMRC’).

How to complete returns

All monetary amounts should be returned exactly. For example, £999.99 should be reported as £999.99.

HMRC will give providers a provider reference number to use when submitting returns of information. The provider reference number HMRC allocates is made up using the characters ‘CTF’ followed by four digits.

The tax year is the one in which the subscription year end falls. The entry should always be the year in which the tax year ends. For example, for a return to 5 April 2021 the entry should be 2021, and if a provider ceases to manage CTFs on 1 September 2020, the entry should still be 2021.

The unique reference number for the child is in the format QQ123456C. Note that in some cases the last character is a space, not a letter.

When reporting market value providers should report the aggregate market value at 5 April in the year of return, (or at any other date in that year, not falling earlier than 5 October in the year of return), of all assets held in each CTF, separately for cash and other assets. For insurance policies held the surrender value of the policies should be reported.

Where a child dies or reaches 18 during the return period, the market value at that date (or at any other date in that year, not falling earlier than 5 October in the year of the return) should be reported.

For amount subscribed, where there have been no subscriptions in the subscription year providers should enter ‘0’. Providers should include the amount subscribed in the subscription year to any previous provider(s). This will be notified to the new provider by the old provider on the transfer form. This total should not include government contributions.

For the registered contact providers must enter ‘Y’ if there was a registered contact at any time during the return period or ‘N’ if there was not a registered contact during the return period. As an alternative providers may record the presence of the registered contact at the last day of the return period (usually 5 April), using ‘Y’ if there was a registered contact and ‘N’ if not.

From 1 September 2020, the first CTF accounts started maturing on the 18th birthday of the account holder. Changes were made to the CTF annual returns for 2021 and later years to allow for the reporting of:

• matured CTF accounts that have now closed
• protected CTF accounts that have continued at 5 April 2021

Since May 2021, 4 account types can be included on your CTF annual return. These are a:

• stakeholder account (type 1)
• non-stakeholder account (type 2)
• account matured on 18th birthday of account holder (type 3)
• matured CTF account that continues after 18th birthday of account holder (type 4)

Type 1 and 2 accounts should only be reported for current CTF accounts that have not matured because the child is not yet 18.

All accounts that have matured during the tax year should be reported as type 3 accounts. You should report the market value at the date of maturity or the market value at any other date, not falling earlier than 5 October in the current reporting period.

Where a CTF account has been converted into an ISA because no instructions were provided at maturity, this should be reported as a type 3 account only. The ISA will need to be included on the ISA return of information.

Where a CTF account has continued as a protected CTF account because no instructions were provided at maturity, this should be reported as a type 4 account. CTF providers should report the market value at 5 April or the market value at any other date, not falling earlier than 5 October in the reporting period

This means that for CTF returns from 2020 to 2021 and onwards, a type 4 account will also have to be reported as a type 3 account in the year the account matures. HMRC’s systems will accept a unique reference number being reported twice with different account types. This means HMRC will be able to identify the number of accounts that have matured since 1 September 2020 and how many have continued as protected CTF accounts.

For account types 3 and 4, you do not need to tell HMRC if the CTF was a stakeholder or a non-stakeholder account before it matured.

Submission of returns

Providers who fail to submit their returns of information by 4 June will be sent a reminder. No claims for payment of income tax will be processed until the return is submitted.

Penalties

Under section 20 of the Child Trust Funds Act 2004, providers may be charged penalties for making an incorrect return.

HMRC inspection and audit objectives

Introduction

HMRC may undertake inspections to make sure that providers have met their obligations under the CTF regulations.

Auditors will review providers’ procedures, check the calculation of claims, interim, annual and fortnightly, the accuracy of annual information returns and carry out sample checks on individual CTFs.

New providers (or existing providers implementing major systems or procedure changes) can seek advice from HMRC, who will give advice and, in certain circumstances, arrange a help visit.

Most inspections are routine, and that the timing and frequency generally depends on the amount of tax involved. The frequency at which providers are inspected depends partly on the results of any previous inspection and on the size of claims. However, factors such as significant fluctuations in claim size, a merger of providers, or the transfer in bulk of CTFs to another provider may also affect the timing of an inspection.

Before the inspection

HMRC will issue a formal notice of an inspection at least two weeks before the date of the visit. This formal notice may be preceded by a telephone call.

The inspection

Auditors will visit the location at which the provider’s records are maintained. This is normally the provider’s own premises, but where the administration is carried out by a third party and the records are held by the third party, the inspection will be carried out at the third party’s premises. Records must be available for inspection in the UK.

There are penalties under section 20 of the Child Trust Funds Act 2004 for failing to make records available for inspection or for failing to provide information.

Providers must show auditors certain records to demonstrate that the provider has operated the CTF scheme correctly. The records will include all documents, books, and other records which providers have or control containing information relating to any CTF.

The Code of Practice explains HMRC’s general approach to the examination of records. In relation to CTFs, auditors will want to see, or have available on request, the following documents or records:

• applications to open a CTF, including the voucher (if appropriate)
• CTF annual statements
• all computer records, printouts, reconciliations, update statements, microfiche ledgers, and so on relating to the production of fortnightly returns, interim claims and annual tax claims and annual information returns for the current and preceding tax year

Auditors may need to ask providers to reproduce this data for each interim claim making up the last annual claim and may also need to see other records and check to providers’ systems and procedures.

Retention of records

Although auditors will wish to inspect recent records, providers should retain all records for three years from when they were made, given or issued. The records to be retained include:

• applications to open a CTF
• vouchers
• correspondence
• CTF history and valuation records
• records of repaired CTFs
• annual and interim tax claims
• annual statements
• annual information returns

Where a CTF has been transferred to another provider, a record of the transfer must be retained for three years from the date of transfer.

Providers may hold the records (including applications) on computer or microfilm. Records held in this way must be retrievable, and easily accessible by auditors.

Providers are not required to retain recordings of telephone applications, where registered contacts have made applications other than in writing.

After the inspection

Auditors will normally report their findings to providers in a written report within 28 days of an inspection visit. An electronic version of the report can be sent.

Where auditors are satisfied that tax relief has been obtained only where due and that any claims by the provider have been made correctly, they will advise the provider that no further action is needed.

Recovery and penalties

Where auditors believe that government contributions or tax relief has been incorrectly claimed by a provider, where the provider has submitted incorrect claims or where any CTF procedure has not been followed correctly they may require the provider to pay a penalty not exceeding £1 per CTF affected by the error.

Incorrect claims may also attract penalties under section 95 of the Taxes Management Act 1970 where the claims were made fraudulently or negligently. Penalties may be charged on amounts recovered both under the strict basis, and under simplified voiding. We will not charge penalties on the first audit of a provider’s system except in the most serious circumstance.

Where the sample contains CTFs where a breach of the CTF rules has taken place, but the number of invalid CTFs found is not statistically valid, auditors will conclude that similar errors are unlikely to exist throughout the rest of the CTFs held. They will therefore ask providers to correct the individual errors identified, and charge a penalty only on the cases found.

Where auditors have used a statistically valid sample, and the number of errors are also statistically significant, then the results of the sample will be extrapolated across the total number of CTFs held. The auditors will ask the provider to carry out a 100% review of all unexamined CTFs which might have the same error.

If not carried out as part of the audit, this review should take place as soon as practicable after the audit is completed. In these circumstances auditors will seek to determine, by agreement with the provider, the potential number of errors, and if appropriate, ask the provider to make a payment on account of the final penalty, while the correct figure is calculated.

The provider must inform each registered contact whose CTF is voided of details of the interest, dividends and capital gains and losses arising on the investments.

These will be taxable on the child in the normal way.

Applications

The auditor will select a sample of CTFs opened by voucher with the provider and view documentation relating to each account selected to verify if the account meets all CTF requirements. For the CTFs selected for examination auditors will check:

• that a valid voucher is held (if appropriate)
• where the application is in writing that the application is fully completed and contains a signature
• where the application is not in writing that a written declaration has been made on behalf of the applicant
• that the CTF was not opened prior to receipt of the voucher and completion of the application form
• that the application contains the required declaration and authority , and
• that the terms and conditions applying to the CTF contain the required statements (see the section on ‘CTF terms and conditions’).

Subscriptions to CTFs

The auditor will examine the provider’s system for preventing oversubscription to the CTF, and will select a sample of CTFs held by the provider. For the CTFs selected for examination auditors will check:

• that the subscription limits have not been breached (see the section ‘When can subscriptions to a CTF be accepted’)
• that withdrawals from the CTF have only taken place in allowed circumstances (see section ‘When investments can be withdrawn from a CTF’)

Stakeholder CTFs

Where the provider offers stakeholder CTFs auditors will examine the conditions applying to the stakeholder to make sure that they comply with conditions set out in the Stakeholder conditions section.

Non-stakeholder CTFs

Auditors will review the investment policy of the CTF provider and look for further documentary evidence that only qualifying investments have been made within the CTF. They will check that the ongoing responsibility for managing the investment strategy within CTF continues and that the investment qualification for CTF is continually monitored.

Auditors will ask for a stock listing (or equivalent) to review the types of investment held in the CTF, and where the auditor is unsure of the qualification of some investments for CTF may ask the provider for evidence that the particular investment qualifies for CTF.

Transferred CTFs

Auditors will check the procedures in place to facilitate the transfer of CTFs out to a new provider and for internal transfers by examining the paperwork for transferred accounts, which will include the request by the registered contact to transfer the CTF. They will check that the transfer was carried out within the time allowed (see section ‘Internal transfer’ and section ‘External transfer’).

Interim and annual claims

Auditors will look in detail at the most recent claims submitted, both CTF10 and CTF14, to verify the claims being made are accurate and reflect the amount of tax deducted from investments.

They will need to see any original vouchers relating to claims; verify only the amount stated as tax has been claimed for; and to make sure that claims are made only for investments relating to CTF accounts. There will be a walk through of the system to look at fail-safes of claims procedures and make sure claims relate only to UK income tax deducted.

The CTF14 annual claim form will be examined to verify that it accurately reflects the details of the interim claims for the period and that any balancing charge or claim is accurate and verifiable.

Annual information returns

Auditors will select a sample of CTFs, to verify the information returned on the annual information return is accurate and reflects the information held by the manager.

Auditors will also check that all CTF accounts under management of the provider at 5 April each year appear on the annual return. The auditor will select a sample of accounts from the provider’s database and compare the details with the submitted return to make sure they have been reported correctly.

Annual statements

Auditors will view a sample of the annual statements issued (see section on CTF statements’), to verify that the details sent to each child are accurate and reflected in the records of the provider. They will also view the statement contents to verify that the detail contained are as required by CTF regulations and make sure the statement has been issued to the appropriate person at the correct time (see section ‘To whom issued’ and section ‘Statement contents’).

Qualifying investments

The auditor will check a sample from a listing of all CTF investments (other than cash on deposit) held by the provider, to verify that only qualifying investments are held within the CTF (see the section on ‘Qualifying investments in the CTF’). They will view a stock listing (or equivalent) to review the types of investment held and review systems controlling the investments made within the CTF.

Withdrawals

The auditor will review all accounts where investments have been withdrawn from the CTF, to make sure that withdrawals are allowed only in the circumstances in section ‘When investments can be withdrawn from a CTF’, to verify the procedures and processes for allowing withdrawals are adequately controlled to prevent unauthorised withdrawals.