Child Trust Funds: 'lifestyling' of accounts, annual subscription limits and other updates
Published 23 February 2017
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Who is likely to be affected
Child Trust Fund (CTF) account holders and adults managing these accounts and banks, building societies and other financial institutions who offer CTFs.
General description of the measure
The measure makes a number of changes to the CTF rules, including by increasing the amount that can be saved annually into an account, and removing the requirement upon CTF providers to apply a ‘lifestyling’ investment strategy for stakeholder CTFs. The measure also includes other minor changes and updates to the CTF rules, such as in relation to the information that account providers are required to supply on the transfer of an account.
Policy objective
The measure supports savers and ensures that children and families have access to suitable tax-advantaged savings products that meet their needs.
Background to the measure
Around 6 million children hold a CTF and around 4.7 million of these accounts are stakeholder CTFs.
The CTF rules require account providers to adopt a ‘lifestyling’ investment strategy for stakeholder CTFs. This aims to minimise the variation in capital value of the account caused by market conditions. Under the current CTF rules, the lifestyling process must have commenced before the stakeholder CTF holder reaches 15 years of age and continue until the account holder reaches 18 years of age, when their account matures.
Between 21 September 2015 and 14 December 2015, the government consulted on lifestyling, in order to obtain views and evidence about the costs and benefits of this account feature. The government published its response to the consultation on 9 August 2016, in which it announced that it intended to remove the requirement that stakeholder CTFs must be subject to lifestyling.
At Autumn Statement 2016, the government announced that the annual subscription limit for Child Trust Funds would increase to £4,128 from 6 April 2017.
Detailed proposal
Operative date
The measure will have effect from 6 April 2017.
Current law
The account rules for CTF, including the amount that can be paid into an account and requirements in relation to account transfers between providers, are set out in the Child Trust Funds Regulations 2014 (SI 1450/2004) (CTF regulations).
The schedule to the CTF regulations sets out rules and account features which apply specifically to stakeholder CTFs. Paragraph 2(6) of the schedule includes a definition of ‘lifestyling’, and provides that, where appropriate, this process must have commenced in relation to an account by the time the account holder reaches 15 years of age.
The CTF regulations also set out which institutions can be approved to offer CTF accounts, and permit sums to be withdrawn from an account if an account holder is terminally ill. These provisions are framed with reference to appropriate provisions in other legislation relating to financial regulation, child protection and welfare.
Proposed revisions
The CTF regulations will be amended by secondary legislation to increase the amount that can be paid into a CTF each year from £4,080 to £4,128. The requirement upon account holders to apply a lifestyling investment strategy for stakeholder CTFs will also be removed.
Other minor updates will also be made to the CTF regulations, for example to take account of changes to other legislation referred to in these regulations concerning the regulation of certain financial institutions, child protection and terminal illness. Provisions within the CTF regulations relating to the transfer of accounts will also be updated to reduce the information that must be passed between account providers on the transfer of an account.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible |
The measure is expected to have a negligible impact on the Exchequer.
Economic impact
The measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
Around 6 million children hold a CTF. The measure will increase the amount that can be saved with tax advantages in their account.
There are approximately 4.7 million stakeholder CTFs. The removal of the lifestyling requirement may affect the investment strategy adopted in relation to these accounts, after the account holder reaches 15 years of age. This may, in turn, affect the future returns from accounts. The impact upon each account holder will depend upon their individual circumstances and the investments they choose to hold in their account. However, the change is not expected to affect the ability of children and families to access suitable tax-advantaged savings products that meet their needs, given the range of choice in the market for children’s savings.
Other changes within this measure provide necessary updates to the legislation to take account of other legislative changes, and are not expected to have any practical impact upon the tax advantages or other entitlements currently enjoyed by CTF holders.
The measures are not expected to impact on family formation, stability or breakdown.
Equalities impacts
The measure impacts on around 6 million children who hold CTFs. It is not anticipated that the measure will impact adversely on any groups with protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses. Around 70 financial institutions provide stakeholder CTFs that would have been subject to lifestyling from September 2017 (once their oldest account holders reached 15 years of age).
Removing the lifestyling requirement means that providers will no longer incur one-off and ongoing costs. Responses to the government’s consultation on lifestyling indicated that future costs would include those associated with the development of new account systems and investment strategies - as well as additional transaction fees that would arise as CTFs were moved progressively from equities. It was suggested that account providers would also need to supply additional communications to customers, and might incur management charges if their lifestyling strategy required them to place cash with another institution. However, most CTF providers that responded to this consultation were unable to accurately quantify their future costs associated with lifestyling.
The measure is also expected to reduce costs for CTF providers transferring accounts to another provider, as it reduces the information that must be provided in relation to these transfers. CTF providers will incur a negligible one-off cost to adjust their accounting systems to take account of the new CTF subscription limit from 6 April 2017.
Small and micro-business assessment. The government’s consultation identified potentially significant costs for small or micro businesses that offer stakeholder CTFs. The measure will mean that these costs will not be incurred.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
The overall additional costs for HMRC in implementing these changes are anticipated to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer and provider groups.
Further advice
If you have any questions about this change, please contact Helen Williams on Telephone: 03000 512336 or email: savings.audit@hmrc.gsi.gov.uk.
Declaration
Jane Ellison MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.