Maturing Child Trust Funds
Published 15 January 2020
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1. Overview
1.1 Who is likely to be affected
Young adults with maturing Child Trust Fund (CTF) accounts.
Banks, building societies and other financial institutions who provide or manage CTFs or Individual Savings Accounts (ISA).
1.2 General description of the measure
The measure will:
- amend CTF regulations to make sure that investments in CTF accounts can retain their tax advantaged status post maturity pending instructions from the account holder
- amend ISA regulations to allow savings transferred from a matured CTF to be discounted for the annual ISA subscription limit
1.3 Policy objective
To make sure savings in maturing CTFs retain their tax protection post maturity.
1.4 Background to the measure
CTF accounts will start to mature in September 2020 when the first children reach 18. Without regulatory change the investments would lose their tax advantaged status.
An announcement was made at Budget 2018 that consultation would take place in Spring 2019 on draft regulations which made sure investments in maturing CTF accounts could retain their tax advantaged status post maturity. The amending regulations have been informed by a programme of informal discussions with CTF providers, and a public consultation in July – August 2019.
2. Detailed proposal
2.1 Operative date
The changes will apply from 6 April 2020. The first accounts mature in September 2020.
2.2 Current law
The CTF rules are set out in the Child Trust Funds Regulations 2004 (SI 1450/2004) (CTF Regulations) which are made under the Child Trust Fund Act 2004 (CTF Act).
Section 7B of the CTF Act was introduced by the Deregulation Act 2014 and provides that regulations may make provisions which make sure investments in CTF accounts can retain their tax advantaged status post maturity. Currently the CTF status of savings (and therefore the tax advantages) stop at maturity.
Regulation 2 of the CTF Regulations defines terms such as ‘account’ for CTF purposes.
Regulation 10 of the CTF Regulations sets out the requirement governing the provision of statements by the providers of CTF accounts.
The ISA rules are set out in the Individual Savings Account Regulations 1998 (SI 1998/1870) (ISA Regulations), which are made under powers in the Income Tax (Trading and Other Income) Act 2005 and the Taxation of Chargeable Gains Act 1992. The Regulations specify the maximum amount which can be subscribed to ISA annually and give exemptions to that amount, including where funds in a CTF are transferred to a Junior ISA.
Regulation 2 of the ISA Regulations defines terms such as ‘account’ for ISA purposes.
Regulation 4ZA of the ISA Regulations gives the overall subscription limits for accounts other than Junior ISA accounts.
Regulation 8 of the ISA Regulations specifies the kinds of investments which qualify to be held in a cash ISA.
Regulations 10A and 12 of the ISA Regulations give the conditions for opening a Lifetime ISA.
Regulation 12B of the ISA Regulations gives the conditions for opening an ISA.
2.3 Proposed revisions
Child Trust Funds
The measure inserts new regulations 13A, 13B and 13C into the Child Trust Funds Regulations.
Regulation 13A of the CTF Regulations will provide for situations where instructions are given by the person who holds the child trust fund as to what is to be done with the investments in the matured child trust fund.
Regulation 13B of the CTF Regulations will provide that, where a CTF provider has received no instructions on the future of the investments from the account holder, those investment must be placed, at maturity, in a ‘protected account’ pending instructions. The ‘protected account’ can be a ‘matured CTF account’ or a cash ISA or stocks and shares ISA, offered by the original CTF provider. The Regulation provides that funds in either ‘protected account’ will keep their tax advantaged status, and the general terms and conditions which applied before maturity.
Regulation 13B will also make consequential amendments to make sure that references in the CTF Regulations are to be read as including the matured account and the holder of the matured account, to ‘account’, ‘child trust fund’, ‘named child’, ‘eligible child’, ‘child’, ‘registered contact and ‘responsible person’ are to be read as including the matured account and the holder of the matured account.
Regulation 13C of the CTF Regulations will give the conditions under which a ‘matured CTF account’ must operate, including that no subscriptions can be made to the account. Certain rules in Regulation 14 (relating to publication of statements), 18A (permitted withdrawals from an account where the child is terminally ill), 20A (transfers to other accounts for children) and 32 (returns of information by account provider), are to be treated as omitted for the purposes of the ‘matured CTF account’.
Regulation 2 of the CTF Regulations will be amended to include a definition of ‘matured CTF account’.
Regulation 10 of the CTF Regulations will be amended to include a requirement to provide an account statement following the account holder’s 17th birthday.
2.4 Individual Savings Account
The measure inserts new regulations 5DZ and 5DZA into the Individual Savings Account Regulations.
Regulation 5DZ of the ISA Regulations provides that a subscription made as a result of an instruction to transfer funds from a maturing CTF under regulation 13A of the Child Trust Fund Regulations is disregarded for the purposes of the overall subscription limit under regulation 4ZA. It further provides that, in such circumstance, a subscription to a Lifetime ISA is subject to the overall Lifetime ISA payment limit under regulation 4ZA. This is consistent with the approach to maturing Junior ISAs.
Regulation 5DZA of the ISA Regulations provides for circumstances where no instructions have been given by the account holder and there has been a transfer by the account provider to an ISA, under regulation 13B of the Child Trust Fund Regulations. It provides that a subscription made by such a transfer is disregarded for the purposes of the overall subscription limit provided in regulation 4ZA. It further provides that, where a transfer has been made by the account provider, no further activity can take place until the account holder has completed an application under Regulation 12 of the ISA regulations.
Regulation 5DZA will also make consequential modifications to Regulation 31 regarding returns of information by the account provider.
Regulation 8 of the ISA Regulations will be amended to specify that a CTF matured account is not a connected account for the purposes of a cash ISA.
Regulations 10A, 12 and 12B of the ISA Regulations will be amended to provide that an ISA may be opened to receive investments from a mature CTF where the account holder is not resident in the United Kingdom at the time of account opening. This is consistent with the approach for maturing Junior ISAs.
2.5 Summary of impacts
Exchequer impact (£million)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| - | 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
This measure is expected to have a positive impact on young adults with maturing CTFs as it keeps their tax advantages. Approximately 800,000 CTFs will mature each year effective 1 September 2020. Not all account holders are engaged with their account and may not give instructions on the account’s future.
The regulation changes make sure the investments remain tax advantaged pending engagement by the account holder. It also allows the account holder to transfer the mature investments to an ISA of their choice outside the annual subscription limit and irrespective of whether they are UK resident at the point of transfer. This measure is not expected to impact on family formation, stability or breakdown.
Equality impact
Around 6 million children from all income groups and sexes hold a CTF. Although it is not anticipated that the measure will disproportionately affect any groups with protected characteristics it is likely that the changes will particularly benefit young adults who may be less experienced financially and unaware of the maturing account. The changes will make sure the account remains tax advantaged pending action by the account holder.
Impact on business including civil society organisations
Approximately 70 approved CTF providers will be affected by the changes. The effect on individual firms will be dependent on the number of accounts which remain with them post maturity. Although providers would have kept responsibility for managing the accounts post maturity without the proposed changes, they will need to continue applying the CTF rules and meet modified CTF reporting requirements in relation to the account.
The impact on admin burdens and costs is expected to be negligible. One-off costs will include familiarisation with the changes and could include adjusting internal systems to take account of the ‘matured account’ and minor reporting changes. On-going costs could include giving an annual return to HMRC of all matured CTF accounts they manage, but the information needed will be minimal.
There is expected to be no impact on civil society organisations.
Operational impact (£million) - 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.
3. Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer and provider groups and monitoring of the information received annually from CTF providers.
4. Get more information
If you have any questions about this change, contact Helen Williams by phone: 03000 512336 or email: savings.audit@hmrc.gsi.gov.uk.
5. Declaration
John Glen, Economic 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.