There is a growing issue with children’s investment accounts where the child cannot take over the account due to mental incapacity.
Under current regulations, a Junior Isa converts to an adult Isa when the child reaches the age of 18. At this point, the registered contact (that is, parent or guardian) ceases to have control over the account, and the child takes over as the account holder.
There is a similar process for child trust funds, whereby the registered contact steps aside and the funds can be withdrawn or transferred to an adult Isa.
Where the now-adult child is unable to give instructions due to incapacity, both types of account can remain open and tax-free, but they are left somewhat in limbo in terms of ongoing management. This is problematic if investments need to be bought or money withdrawn.
Challenges
The challenge from the provider’s perspective is that there is no avenue in the regulations for the registered contact to continue providing instructions: they have to come from the child. Furthermore, neither type of account allows withdrawals before 18 (unless the child dies or has a terminal illness).
As a result, the only suggestion the provider can offer is for the parent to make an application to the Court of Protection for a deputy order over the child’s affairs.
However, this is potentially time-consuming and costly (albeit there are some fee exemptions), so many parents will be put off by the prospect, particularly if the CTF or Jisa is the child’s only investment account and is not a significant amount.
The end result is that the parents can not access the funds and the provider has an unmanaged account, which is a poor outcome all round.
Solutions
There may be a pragmatic way through, and we have seen the largest CTF provider in the UK, One Family, allow access to funds outside the standard framework.
This is a positive move and will lead to good outcomes, but it is reliant on providers being comfortable enough to accept the risk of being challenged further down the line by other family members or by HM Revenue & Customs, if audited.
The ideal solution of course would be a regulatory one, and the Ministry of Justice launched a consultation in November 2021 on allowing access to small payments. It proposed measures to allow a single withdrawal in a six-month period up to a maximum of £2,500, the aim being to tide the parents over until they could apply for a deputy order.
This would be a step forward, but £2,500 is not much when you consider the annual CTF and Jisa subscription limits were £3,600 as far back as 2011–12 and now sit at £9,000. Nor does it offer much more than a sticking plaster.
The consultation response was due in July 2022, but this has been pushed back until autumn because it “exposed a number of issues that require further consideration”. I think there is a risk we end up with an overengineered process that only allows access to small sums.
