Looked After Children who Have their Own Funds

1. Introduction

Looked After Children may 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.

2. Bank Accounts

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 6, 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.

3. Junior Individual Savings Accounts (ISAs) for Looked After Children

See also Junior Individual Saving Accounts for Looked After Children - Statutory Guidance for Local Authorities

3.1 Introduction

In November 2011, the Government announced a new scheme to support long-term savings for Looked After children. Those who did not previously benefit from a Child Trust Fund (CTF), and had been Looked After for 12 months or more, received a £200 Government payment into a Junior Individual Savings Account (Junior ISA).

3.2 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.

3.3 Who can pay money into Junior ISAs?

Anybody can put money into a Junior ISA. The total limit for payments into Junior ISAs is £4,260 in each tax year. For eligible Looked After children, the Government will open the accounts, making a one-off initial payment of £200 (or pay this into existing accounts already held by Looked After children). Additional payments could then be made by carers, local authorities or young people themselves.

3.4 Which Looked After children 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) are 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.

Looked After children 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.

3.5 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 Looked After children at appropriate times so that they can understand how best to use the financial asset of their account.

4. Criminal Injuries Compensation Authority Payments

4.1 Compensation Payments

The Criminal Injuries Compensation Scheme is a government-funded scheme to compensate victims of violent crime, administered by the Criminal Injuries Compensation Authority (CICA).

Payment of compensation is usually by a single lump sum, but if the medical situation is unclear, one or more interim payments may be made.

Where the recipient is under 18 years, the CICA will then normally put the money in an interest-earning deposit account in the child's name, the payment to be paid to the child (together with all interest earned) when they reach 18.

The CICA may consider requests to make payment into a Child Trust Fund/Junior ISA or another type of account where the full value of the payment is protected until the child is 18 years old.

4.2 Advancing Money from the Award to the Child

The CICA may allow advances if these are needed for the child's sole benefit, education or welfare (not for general spending money). 

They may consider making a full payment if the child is 16 or 17 years of age and living independently.

The CICA will need evidence (normally a receipt) proving that it has been used for the purposes intended. If they don't get this evidence, they will not allow any further advances.

4.3 When a Young Person is 18

When the young person reaches the age of 18 years, responsibility for handling the money awarded by the Criminal Injuries Compensation Authority will be handed over to him/her unless he/she is felt to be incapable of dealing with it.

If the CICA receive evidence which shows it would not be in the child's best interests to be given the payment as a lump sum when he/she turns 18, they may give further consideration to the use of an annuity or a trust at that time.

See also: A Guide to the Criminal Injuries Compensation Scheme.

5. Trusts

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.

6. Income Tax

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.