The Child Trust Funds Regulations 2004

Qualifying investments for an account U.K.

12.—(1) This regulation specifies the kind of investments (“qualifying investments for an account”) which may be purchased, made or held under an account.

(2) Qualifying investments for an account to which paragraph (1) refers are—

(a) shares, not being shares in an investment trust, issued by a company wherever incorporated and officially listed on a recognised stock exchange (see paragraph (3));

(b) securities—

(i) issued by a company wherever incorporated,

(ii) which satisfy at least one of the conditions specified in paragraph (5), and

(iii) in the case of securities of an investment trust, purchased or acquired by the account provider in circumstances where the investment trust satisfies the condition specified in paragraph (6);

(c) gilt-edged securities;

(d) any securities issued by or on behalf of a government of any EEA State;

(e) any securities which, in relation to a security mentioned in sub-paragraph (d), would be a strip of that security if “strip” had the same meaning as in section 47 of the Finance Act 1942 M1 , with the omission of the words “issued under the National Loans Act 1968”;

(f) shares in an investment trust, listed in the Official List of the Stock Exchange (see paragraph (3)), in circumstances where the trust satisfies the condition specified in paragraph (6);

(g) units in, or shares of, a securities scheme, warrant scheme or fund of funds scheme;

(h) units in, or shares of, a money market scheme;

(i) units in, or shares of, a UCITS;

(j) a depositary interest;

(k) cash deposited in a deposit account with a building society, or a person falling within section 840A(1)(b) of the Taxes Act M2 [F1 (including for this purpose a credit union)] or a relevant European institution, subject to paragraph (8);

(l) cash deposited in a share account with a building society, subject to paragraph (8);

(m) policies of life insurance which satisfy the conditions specified in paragraphs (9) and (10);

(n) any securities issued under the National Loans Act 1968 M3 —

(i) for the purpose of or in connection with raising money under the auspices of the Director of Savings within the meaning of section 11(1)(a) of the National Debt Act 1972 M4 , and

(ii) other than national savings certificates, premium savings bonds, national savings stamps and national savings gift tokens,

which, according to the terms and conditions subject to which they are issued and purchased, are expressly permitted to be held under an account;

[F2 (o) arrangements falling within section 47 of the Finance Act 2005 (alternative finance arrangements) under which the person referred to in that section as Y is a financial institution;

(p) arrangements falling within section 49 of that Act;

(q) qualifying units in or shares of a non-UCITS retail scheme.]

(3) An investment in shares fulfils the condition as to official listing in paragraph (2)(a) or (f) if—

(a) in pursuance of a public offer, the account provider applies for the allotment or allocation to him of shares in a company or investment trust which are due to be admitted to such listing within 30 days of the allocation or allotment, and which, when admitted to such listing, would be qualifying investments for an account, and

(b) the shares are not allotted or allocated to the account provider in the circumstances specified in paragraph (4).

(4) The circumstances specified in this paragraph are where—

(a) the allotment or allocation of the shares was connected with the allotment or allocation of—

(i) shares in the company or investment trust of a different class, or

(ii) rights to shares in the company or investment trust of a different class, or

(iii) shares or rights to shares in another company or investment trust, or

(iv) units in or shares in, or rights to units in or shares in, an authorised fund or a part of an umbrella scheme, or

(v) securities or rights to securities of the company or investment trust, or of another company or investment trust,

to the account provider, the registered contact or any other person; and

(b) the terms on which the first-mentioned shares in this paragraph were offered were significantly more favourable to the account provider or the named child than they would have been if their allotment or allocation had not been connected as described in sub-paragraph (a).

(5) The conditions specified in this paragraph are—

(a) that the shares in the company issuing the securities are listed on the official list of a recognised stock exchange;

(b) that the securities are so listed;

(c) that the company issuing the securities is a 75 per cent. subsidiary of a company whose shares are so listed.

(6) The condition specified in this paragraph is that the investment trust has no eligible rental income, in its most recent accounting period to end before the date on which the shares in, or securities of, the investment trust first become investments under the account, provided that the shares or securities shall cease to be qualifying investments for an account if the investment trust has any eligible rental income, in subsequent accounting periods, during which the shares or securities are held.

(7) In paragraph (4)(a), “company” means any body corporate having a share capital.

(8) A deposit account or share account which is a qualifying investment for an account falling within paragraph (2)(k) or (l) must not be connected with any other investment, held by the named child or any other person, and for this purpose such an account is connected with an investment if—

(a) either was opened or acquired with reference to the other, or with a view to enabling the other to be opened or acquired on particular terms, or with a view to facilitating the opening or acquisition of the other on particular terms, and

(b) the terms on which the account was opened would have been significantly less favourable to the holder if the investment had not been acquired.

(9) The conditions specified in this paragraph are that—

(a) the insurance is on the life of the named child only;

(b) the terms and conditions of the policy provide—

(i) that the policy may only be owned or held as a qualifying investment for an account which satisfies the provisions of these Regulations;

(ii) that the policy shall automatically terminate if it comes to the notice of the account provider, in any manner, that the event specified in paragraph (11) has occurred in relation to the policy;

(iii) for an express prohibition of any payment of the proceeds from the termination of the policy or a partial surrender of the rights conferred by the policy, to the named child (while he is still a child) [F3 except in accordance with regulation 18A (terminal illness)]; and

(iv) that the policy, the rights conferred by the policy and any share or interest in the policy or rights respectively, shall not be capable of assignment or (in Scotland) assignation, other than that they may be vested in the named child’s personal representatives, and that the title to the policy may be transferred to a new account provider subject to and in accordance with regulations 8(2)(f) and 21;

(c) the policy evidences or secures a contract of insurance which—

(i) falls within paragraph 1 or 3 of Part 2 of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 M5 , or

(ii) would fall within either of those paragraphs if the insurer were a company with permission under Part 4 of the Financial Services and Markets Act 2000 M6 to effect or carry out contracts of insurance;

(d) the policy is not—

(i) a contract to pay an annuity on human life,

(ii) a personal portfolio bond within the meaning given by regulation 2(1) of the Personal Portfolio Bonds (Tax) Regulations 1999 M7 , or

(iii) a contract, the effecting and carrying out of which constitutes “pension business” within the meaning given by section 431B(1) of the Taxes Act M8 ; and

(e) after the first payment in respect of a premium in relation to the policy has been made, there is no contractual obligation on any person to make any other such payment.

(10) The condition specified in this paragraph is that no sum may at any time, at or after the making of the insurance, be lent to or at the direction of the named child or registered contact by or by arrangement with the insurer for the time being responsible for the obligations under the policy.

(11) The event specified in this paragraph is that—

(a) there has been a breach of any of the conditions in paragraph (9) or (10), or any of those conditions was not satisfied at the date on which the insurance was made; and

(b) the breach or non-compliance cannot be remedied in accordance with regulation 23, or (in any other case), has not been remedied within a reasonable time.

(12) Where the event specified in paragraph (11) occurs in relation to a policy, the policy shall nevertheless be treated, for the purposes of these Regulations, excepting paragraphs (9)(b)(ii) and (11), and regulations 37(6) and 38, as if it had satisfied the conditions in paragraphs (9) and (10) during the period—

(a) commencing at the time when that specified event occurred, and

(b) ending immediately before—

(i) the end of the final year in relation to the policy, within the meaning in section 546(4) of the Taxes Act, or

(ii) the time at which that specified event came to the notice of the account provider,

whichever first occurs (the “termination event”).

Textual Amendments

F1 Words in reg. 12(2)(k) inserted (6.4.2005) by The Child Trust Funds (Amendment No. 2) Regulations 2005 (S.I. 2005/909), regs. 1, 5

F2 Reg. 12(2)(o)-(q) added (27.12.2005) by The Child Trust Funds (Amendment No. 3) Regulations 2005 (S.I. 2005/3349), regs. 1, 5

F3 Words in reg. 12(9)(b)(iii) added (6.4.2005) by The Child Trust Funds (Amendment) Regulations 2004 (S.I. 2004/2676), regs. 1, 8

Marginal Citations

M1 1942 c. 21; the relevant amendment to section 47 was made by section 202(2) of the Finance Act 1996 (c. 8).

M2 1988 c. 1; section 840A was inserted by paragraph 1(1) of Schedule 37 to the Finance Act 1996 (c. 8).

M3 1968 c. 13.

M4 1972 c. 65.

M5 S.I. 2001/544.

M6 2000 c. 8.

M7 S.I. 1999/1029.

M8 1988 c. 1; section 431B was inserted by paragraphs 2 and 57 of schedule 8 to the Finance Act 1995 (c. 4).