In this month’s technical refresher, we look at the state of play for legacy CTFs
Child Trust Funds (CTFs) are no longer available but may still be held by eligible children born before 3 January 2011. A CTF is a tax-free savings account for children born between 1 September 2002 and 2 January 2011.
Under the scheme, vouchers for specified amounts of up to £500 were provided by the government and had to be invested in a CTF account in the beneficial ownership of the child, but the parent could choose the account provider.
The CTF subscription limit for 2020/2021 is £9,000, having increased from £4,368 in 2019/2020 as announced in the Spring Budget. The limit applies for the period starting with the child’s birthday and ending on the day before their next birthday. There is no scope to carry forward any unused allowance. However, individuals could (and still can) top up the CTF until the child reaches age 18. It should be noted that any amounts paid by a parent to a CTF for their child will not be subject to the parental settlement provisions (so would not be taxed on the parent if income exceeds £100 gross in a tax year). From April 2015, it has been possible to transfer a CTF account to a Junior ISA.
With regard to investment options, there are three main types of CTF accounts available – ‘stakeholder’, share or cash account. Existing accounts are managed by the child’s ‘registered contact’ (usually the parent) who has certain responsibilities until the child is 18, or until the child takes over the responsibility for management of the account. Broadly, once the child turns 16, they can either:
- Take over the account by contacting the CTF provider.
- Leave the ‘registered contact’ in charge of the account until they turn 18, at which point they take over the account.
During the child’s minority, the parent (or other registered contact) is able to change the investments within the existing account via the provider, move the account to an alternative provider or change the type of account, for example from cash to stakeholder.
The first CTF accounts will mature in September 2020 and the account holder will have the ability to transfer the investments to a cash ISA or a stocks-and-shares ISA without the transfer counting as a new ISA subscription.
Where the CTF provider has received no instructions on the future of the investments from the account holder, those investments must be placed, at maturity and “at the option of the account provider”, in a ‘protected account’ pending instructions. The ‘protected account’ can be a ‘matured account’ or a cash ISA or stocks-and-shares ISA offered by the current CTF provider, thereby ensuring that the funds continue to grow in a tax-free environment.