Child Trust Funds and Individual Savings Accounts for Children in Care (including Children with Their Own Funds)
New Child Trust Funds ceased in January 2011. The section of this chapter relating to Child Trust Funds applies to children born between 1 September 2002 and 2 January 2011.
AMENDMENTIn August 2018, a link was added in Section 2, Junior Individual Savings Accounts (ISAs) for Children in Care to GOV.UK as to how much the savings limit for Junior ISAs is.
1. Child Trust Funds
The Child Trust Fund is a savings and investment account designed to give children born on or after 1 September 2002 and on or before 2 January 2011 a financial start in life and to help teach them the value of saving.
All children born between those dates who are eligible (see Section 1.2, Who is Eligible?) are entitled to this account including Children in Care.
Children born on or after 1 September 2002 and on or before 2 January 2011 are eligible for the Child Trust Fund if child benefit has been awarded for them for at least one day before 4 January 2011, they live in the UK and they are not subject to immigration restrictions.
There are special rules for Children in Care (see Section 1.7, Child Trust Fund and Children in Care).
For children born on or after 1 September 2002 and before 1 August 2010, a voucher worth £250 was sent to the child benefit claimant, with a further £250 for children of families on low incomes. For children born between 2 August and 2 January 2011, the voucher was for £50, with a further £100 for children of families on low incomes A person with Parental Responsibility for the child could then open a Child Trust Fund account for that child with an approved Child Trust Fund provider, e.g. bank, building society etc.
If after a year, no one had opened an account, the Inland Revenue opened an account for the child.
Children whose 7th birthday fell between 1t September 2009 and 31 July 2010 received an extra payment on their birthday of £250 (plus an extra £250 for low-income families/in care).
Anyone can contribute to a Child Trust Fund up to the sum of £4000 per year.
Only the child can withdraw money from the fund when he or she reaches 18. No one else can touch it.
The money belongs solely to the child despite the fact that the person with Parental Responsibility manages the money until the child reaches 16. Young people aged 16 and over can take over the management but cannot make withdrawals until they are 18.
In the case of terminally ill children, the person with Parental Responsibility can request permission to withdraw funds.
There were special rules for Children in Care as child benefit is not payable to them whilst they are looked after. If a child benefit award had been made for a child before he or she came into care, (s)he was eligible for the fund account in the usual way.
Where a child came into care soon after birth, the Inland Revenue opened a Child Trust Fund account for the child.
Even when the local authority had Parental Responsibility under a Care Order, they were not entitled to open or manage a Child Trust Fund account. Where possible, the Child in Care's parents were encouraged and helped to take on this responsibility.
The requirements for local authorities to send returns to HMRC were/are as follows:
Returns for periods up to 6 April 2011
Local authorities were required to make monthly returns, including nil returns, for all months up to and including the month ending 6 April 2011 of Children in Care who were:
- Born after 31 August 2002 and before 3 January 2011; and
- Who became looked after for the first time before 3 April 2011.
Where local authorities subsequently discover, for whatever reason, that a child's details were not included on the appropriate return they should complete a form CT15 (Child) and send it to the Child Trust Fund Office.
Returns from 7 April 2011 onwards
From 7 April 2011, local authorities must make a return each month of any Children in Care:
- Born after 31 August 2002 and before 3 January 2011, and under the age of 16 at the end of the return period who, in the period covered by the return, became looked after and have no one (apart from the local authority), or no one appropriate, with parental responsibility; or
- Were already looked after, but their circumstances have changed so that there is now no one (apart from the local authority), or no one appropriate, with Parental Responsibility.
This is so that the Official Solicitor / Accountant of Court can manage these children's Child Trust Fund accounts. For a child to be treated as having no one, or no one appropriate with parental responsibility, at least one of the six conditions set out at paragraph 5.5 of the Guidance for Local Authorities must apply.
To include any child's details that were not included on an earlier return for a period before or after 7 April 2011.
If there are no children to be reported in any month, a nil return is no longer required.
No child born on or after 3 January 2011 need be included in any return to CTFO.
The child's parent is deemed eligible to manage the Child Trust Fund except in the following circumstances:
- Where the child lives permanently away from the parent with no face to face contact (including children whose plan is for adoption);
- Where there is a court order terminating their contact with the child;
- Where the parent is deemed to have significant mental health problems;
- Where the child is lost and abandoned and where there is no prospect for reunification.
N.B. In all cases where the decision is to exclude, legal advice must be sought.
2. Junior Individual Savings Accounts (ISAs) for Children in Care
In November 2011, the Government announced a new scheme to support long-term savings for Children in Care. Those who did not previously benefit from a Child Trust Fund (CTF), and have been Looked After for 12 months or more, received a £200 Government payment into a Junior Individual Savings Account (Junior ISA).
2.2 What are Junior ISAs?
Junior ISAs provide a tax-free way to save for under 18s. The money in a Junior ISA belongs to the child, but they can't take the money out until they are 18. They can then decide what they want to do with it. Because savings are locked into the account until the account holder's 18th birthday, Junior ISAs are for building long-term assets, rather than day-to-day savings.
2.3 Who can pay money into Junior ISAs?
Anybody can put money into a Junior ISA. Click here to see the savings limit for Junior ISAs (GOV.UK). For eligible Children in Care, the Government will open the accounts, making a one-off initial payment of £200 (or pay this into existing accounts already held by Children in Care). Additional payments could then be made by carers, local authorities or young people themselves.
Children over the age of 16 are responsible for managing their own accounts. Once their account is opened they will be able to make decisions about how best to look after their money for themselves, though they still won't be able to access their savings until they are 18. The scheme will provide financial education to help Children in Care make the best choices about what to do with their savings.
2.4 Which Children in Care are eligible?
All children in the UK who have been Looked After continuously for 12 months or more and who were not eligible for a Child Trust Fund (i.e. were born before 1 September 2002 or after 1 January 2011) will be eligible for the scheme. This includes children who are subject to a Care Order and who are accommodated under Section 20, whether in residential care, with a foster carer or at home.
Children in Care born between 1 September 2002 and 1 January 2011 have previously received support for their long-term savings through the Child Trust Fund (CTF). They will keep their CTFs until their 18th birthday, when they can access their savings. Junior ISAs were designed to replace CTFs following the end of the CTF scheme. No one can hold both a CTF and a Junior ISA.
2.5 Administration of the Scheme
The Department for Education has contracted The Share Foundation to administer the scheme until the end of March 2015. The Share Foundation will open and manage accounts using independent selection advice while children remain Looked After. They will also seek to raise additional funding from charitable sources for distribution to the accounts, and support the financial education of Children in Care at appropriate times so that they can understand how best to use the financial asset of their account.
3. Children with Their Own Funds
Looked After Children may also have funds of their own. Occasionally, for example as a result of an inheritance, these funds may be sizeable.
Administration of such funds will largely depend upon their size. Specialist legal and financial advice must be sought as necessary.
Usually opened and held in the name of an adult with Parental Responsibility as trustee for the child/young person.
Can be easy access, fixed term or for regular monthly saving. Assuming that the child is not liable to pay income tax (see Section 3.4, Income Tax), then they will need to register to get interest on their savings tax-free by submitting form R85. Under the age of 16, the adult with Parental Responsibility will complete and sign the form on the child's behalf. From 16 years, the young person will need to complete a fresh R85 and sign it themselves.
Not suitable for large sums of money. There is an annual limit on the amount of interest that may be earned by a child as a result of money paid in to the child's bank account by a parent/parent's civil partner. Beyond that limit the interest is liable to income tax at the rate applicable to the parent/civil partner. See HMRC website.
Larger sums of money (exceeding the annual limits for bank accounts/Junior ISAs) will need to be held in trust for the child/young person until they reach legal majority (age 18) or a later specified age.
Specialise legal advice should be sought on the drawing up of the trust deed and subsequent administration of the trust. Consideration will need to be given to matters such as the age at which the young person child can access the funds and who the trustees should be.
Children are liable for income tax in the same way as adults. However, income tax is not payable unless the young person's total taxable income per annum exceeds the tax-free Personal Allowance.
For more information see the HMRC website.