UK Child trust fund / junior ISA

[9000]

Hi all,

Great that this forum has survived somehow.

does anyone have experience of dealing with UK child trust funds (junior ISA)?

What's the best way of handling UK/ DE tax obligations?

Child is now permanently in DE, unlikely to return to UK.

[GaryC]

Neither Child Trust Funds, nor ISAs, are concepts within German tax, so any income generated by the product would, I think, be taxable in Germany on first principles. They are both, of course tax exempt in the UK.

The income and/or growth in a Child Trust Fund belongs to the child but they cannot access it until they are 18. Panda will correct me if I'm wrong but as I see it the child simply has annual income in respect of any interest or dividends added to the fund and potentially capital gains to consider if the fund has been acquiring or disposing of assets. The first 1,000€ would not be taxable on the child and they would presumably cover some or all of the rest with their Grundfreibetrag?

Junior ISAs are similar and replaced CFTs. Again, the investment belongs to the child but cannot be accessed until they are 18. The general rule for ISAs is that while you can retain them if you move abroad, you cannot open new ones, add money to them or, I believe, transfer them to other providers. The only real benefit to retaining them if non-resident would seem to be to keep those savings in a UK tax wrapper in the event you one day return to the UK to "pick up where you left off". From a German tax perspective, they are just savings products based on cash savings or investments, so again, the child would presumably have taxable income and ordinary allowances to set against that income.

[PandaMunich]

Neither Child Trust Funds, nor ISAs, are concepts within German tax, so any income generated by the product would, I think, be taxable in Germany on first principles. They are both, of course tax exempt in the UK.

The income and/or growth in a Child Trust Fund belongs to the child but they cannot access it until they are 18. Panda will correct me if I'm wrong but as I see it the child simply has annual income in respect of any interest or dividends added to the fund and potentially capital gains to consider if the fund has been acquiring or disposing of assets. The first 1,000€ would not be taxable on the child and they would presumably cover some or all of the rest with their Grundfreibetrag?

Junior ISAs are similar and replaced CFTs. Again, the investment belongs to the child but cannot be accessed until they are 18. The general rule for ISAs is that while you can retain them if you move abroad, you cannot open new ones, add money to them or, I believe, transfer them to other providers. The only real benefit to retaining them if non-resident would seem to be to keep those savings in a UK tax wrapper in the event you one day return to the UK to "pick up where you left off". From a German tax perspective, they are just savings products based on cash savings or investments, so again, the child would presumably have taxable income and ordinary allowances to set against that income.

Correct on all counts

[9000]

thanks a lot, more or less as I thought.

Will look to close them down once the child is 18.

Hopefully without triggering a liability in the UK due to no longer being resident.

[GaryC]

If you (well, the young adult as the money is theirs) decide to close the savings down, the question arises, where would they save that money instead? There will be no UK tax charge on closing them as the savings are tax-exempt. Also the annual German tax may not be onerous (unless the accounts would fall foul of the new rules about non-Euro accounts? PandaMunich can advise on that since we have no lost that incredibly informative thread on the old forum...

[9000]

I was thinking ETFs on a DE platform

One problem with keeping it going in UK is the admin effort.

Onerous identification requirements on reaching 18, lots of postal correspondence, getting an NI number, potential need for tax return in DE etc

[GaryC]

I get that but surely the person would want an NI Number especially if they might one day want to contribute to the UK state pension. As long as they have 3 consecutive years UK residence they could then pay voluntarily, I think - all about keeping options open?

Not sure about CTF but the ISA is broadly self-administering as it is done by the ISA manager anyway and won't ETFs give rise to the same German tax requirements as a UK ISA?

Up to you of course but worth considering all angles.

[9000]

thanks Gary, indeed we're still thinking about it.

The benefit of DE ETFs would be that we could continue to pay in once the child is 18.

Once the junior ISA converts to an ISA at 18 my understanding is that no addition of funds is possible for non UK residents.

[GaryC]

the paying in point is of course correct and in that context transferring everything to a new product would keep things simpler.